Why don't we go ahead and get started? For those of you who I haven't spoken with before, I'm Andrew Marok, and I cover digital media here at Raymond James. We're pleased to have with us the CFO of WEBTOON, David Lee. David, thanks for joining us today.
Happy to be here.
We'll go over a few questions and hopefully get a better view of the company and some of the latest happenings here, which a lot of interesting things going on. But why don't we start at the very high level? For those in the room who maybe aren't as familiar with the WEBTOON story, can you kind of paint a picture of where you sit within the digital entertainment ecosystem?
Absolutely. Well, listen, I just a year ago was looking outside in, like many of you, maybe at a company that I had not heard of. So the first thing is, while some of you may not have used our product, I bet your friends here in North America who may be sub-25, which is the core audience for our product, our service, know all about us. WEBTOON is a digital entertainment hub. It's powered over 100 examples of rich film adaptations. My family enjoyed "Marry My Husband" when it was a global hit on Amazon Prime in January, not even realizing that the origin of that was a web novelist on our platform several years ago.
And while we love the rich film adaptations that are an example of our evergreen storytelling hub, we are actually a nearly 170 million monthly active user strong consumer platform where over 20 million, 24 million global creators have a chance to use our AI and our data to see if their story, oftentimes as full-time business workers, they're just amateur hobbyists wondering if the story that they're in love with in their head can be a hit, can be a source of these evergreen stories that power 120,000 stories that hit our platform every single day. Now, while it's not just a great flywheel, it's a great business. In the last quarter of Q3, we posted about $348 million US GAAP revenue. We had $20 million of positive GAAP net income. We grew revenue 13.5% constant currency basis, 11.5% the former quarter. So this is a global business.
60% of our monthly active users are not in Korea or Japan. They're in the rest of the world, like here, cultivating strong loyal followership wherever our consumers are based. They all spend at least 30-60 minutes on average per day because, as we see in North America, 70% plus of them say they can't get a story other than from WEBTOON that they like as much. In fact, even more of them say that sometimes their experience on our platform, these are sub-25-year-olds, are more fun than even great platforms like Roblox. So this is probably the greatest AI and consumer media story you've never heard of. And I'm excited to tell you more today.
Great, and kind of digging into one of the points that you'd mentioned there toward the end, I think it is important to consider the variations in regions that WEBTOON has been able to address. So can you give us an overview of kind of the Korean versus Japanese versus rest of world business and where we are in terms of things like user penetration, monetization, and things like that?
Yeah. So it's interesting. This company started in Korea, and in Korea, we're the digital Kleenex of stories. We have 50% of every household in Korea. And if you contrast that, where we just started to grow with effort in Japan, we're the number one consumer app. LINE Manga is the number one consumer app measured based on revenue on iOS, even including mobile games two out of the last three months in Q3, where we only have sub 15% household penetration. And then we talk about the big rest of world, which we're super excited about, where we have sub 5% penetration. But across all these regions, whether they're the high growth, high potential markets outside of Korea, the rocket ship we already have in Japan, or the mature, stable growing business in Korea, what's remarkable is consumers everywhere, France, North America, Japan, Korea, exhibit the same behavior.
They all want a great story. They're all open to wherever it comes from. They want something unexpected from a part of the world that they didn't expect to see on another platform. So we feel like we're seeing strong habituation across a lot of our market measured by our pool, even if we started earlier in Asia.
And that's interesting. And so one thing that I have talked to investors about, especially those who are new to the story, is this is kind of unique in terms of the international market exposure that you guys have relative to many of the businesses that they cover. And I think that's created some surprise around currency dynamics. So as that dynamic kind of filters down into the P&L, I know you gave some color on the last quarter's call for Q4 specifically, but how should we think about currency impacts maybe more generally?
Yeah. So first, we receive currency in countries that we oftentimes pay our expenses. We have a very large labor force, a great labor force based in Korea. So as you've been seeing the headlines that we've been seeing in Korea with our own election here in the United States, with what you may be reading from France and in Europe, the strength of the USD versus the Japanese yen and the Korean won is something that does create a lot of headline reported USD volatility for us, as 80% of our revenue base is exposed to those two currencies. But importantly, when we talk about our performance, we talk about the strong constant currency growth because our business model, our core business model, doesn't really have the same impact as the reported FX numbers you may see.
In fact, for every 5% move in the relative strength of the U.S. dollar to the Korean won and yen, we talk about a $20 million USD reported impact, but only a $2 million Adjusted EBITDA impact. This is something we disclosed at the end of Q3 because I do think investors who don't know us, who don't know the history of constant currency growth, who don't see the $20 million positive net income the last quarter, can see a headline USD number because it's reported due to recent currency volatility and mistake that for fundamental lack of business health. The good news for us is we feel our business is very healthy, even if the USD reported top line number changes due to some historic change in the relative U.S. dollar strength to these two currencies.
But I want to be even more explicit because I've realized that not everyone watches these currencies as closely as we do. We report like Netflix and many other companies when we guide based on the last day of reported FX. So on the last day of Q3, when I provided my guidance, we provided it on the strength of the dollar, which versus the Korean won, the Korean won was at 1,320. I want to be extremely explicit. That's what we disclosed. The yen was 143 USD. Okay. You can make your own conclusion as investors as to what the quarter average is against those baskets. I think when I looked up the won this morning, it was at 1,437 due to some headlines from Korea.
The reason why I mean this explicitly is I wouldn't want new investors to mistake volatility in a reported revenue number with a concern on the fundamental constant currency growth we've continued to post independent of what the reported USD number is.
Thank you for that clarity there. I think that is something that investors should be keeping in mind as they dig into the story. We've looked at the company from kind of a geographic aspects, but maybe let's drill down into some of the products that I think has come and provided some interesting dynamics here. Consumption on the platform, of course, starts with the creators and the content. How are you seeing the growth of new creators on the platform, and have there been any specific moves that the creator community has really responded well to?
So the heart of the company is what we call this flywheel. These 24 million creators globally is a unique advantage for us because these amateurs come to Canvas, which is what we call our English amateur platform or Indies in Japan. And we make it super easy for them as amateurs to tell a story as a webcomic or a WEBTOON that includes imagery. We have all these tools available to them, and it's the reason why we've cultivated such a strong creator base. But what I find exciting in the quarter is not just that it powers a large amount of our revenue, it also shows up as expansion in languages you might be surprised at.
We talked about hit films on Amazon Prime, and like our example from Italy was "Love Me, Love Me," or in Spain, "Sigue mi voz." If you think about a bunch of our new releases that you see, for example, the day after Thanksgiving here in the U.S., Tubi released a feature-length film starring a YouTuber, or I should say a great social media star that is not of my generation, maybe my kids would know at half my age, but Noah Beck. If you think about our creators, the reason why they pick us is we're the category leader where they can publish not in one language, but across many on our platform and make a great living as a professional creator.
As well, the purity of this format. It's almost like a digital storyboard that even as they're making a great living going global with us as a leader in webcomics and WEBTOON, they have the ability to cross over as a feature-length film, or Rachel Smythe is a great example. She became a New York Times bestselling author. As a graphic designer, she started on our platform with a story none of us thought would be as strong as it is. She's rumored to be soon announced as a featured animation release on one of the major streamers here. That promise to creators, the ability to cross cultures, languages, and cross format is associated with the fact that we're the global leader on our platform to start with, these nearly 170 monthly active users, so we feel very good about the fundamental health.
We talked about 120,000 new stories hitting our platform daily in the last quarter. In some ways, we could be the solution for other players in media entertainment that are struggling today with oftentimes an expensive human judgment model on what they think will be hot in the next season. As you see others shut down their global sources of storytelling, we're just getting going on being an evergreen source ourselves for our own platform. But I think what's exciting for creators is increasingly off our platform in new formats.
That's really interesting, kind of that dynamic of taking local market content because everybody has a primary language that they choose to create content in and getting that global scale and getting it to broaden appeal across markets. I guess, is there anything from a product perspective that you specifically are doing? Maybe this is the AI question that I have to ask everybody in terms of either content recommendation or translation or things like that.
Listen, it's a great question. I do think we're the greatest untold story about AI because we may have the largest digital repository of images and stories globally. We've certainly been hard at work for years with a dedicated hundred-strong AI technologist team fully dedicated to us. And how does it show up? We talk about when you have 50% household penetration in a country like Korea, being able to show your consumers what you know they're going to like. We talk about this AI-based personalization engine that grew episodes read in the quarter Q3 in Korea by 3%. That's a tangible example of us helping the consumer. Our AI also helps our creators. We just won an award two weeks ago for being a strong protector of copyrights. Every UGC platform, creative platform globally has to fight piracy. Other companies don't like to talk about it.
We like to talk about it because Toon Radar, which is what we brand our technology solution here, we think has a real advantage protecting our content for our creators and us because we have a revenue share model, remember, very unique for this industry. And then we haven't really talked about outside the IPO process, all the tools that we already have available and the ones that are yet to come. But we are hard at work. Our approach to AI is to take hours out of the process for our creators. We believe humans are the best storytellers. We like to enhance their productivity. We also like to unlock their ability to render images and draw if they're a web novelist, for example. So I would say stay tuned on specifics from a disclosure standpoint. But at our core, we've always been a tech company.
We just happen to have an evergreen storytelling flywheel that is how we go to market.
Great. That's really interesting. So I think we've talked about the content or creator side of the digital entertainment marketplace that you guys are running, but maybe on the user side. So I think in your overview of the geographics of the business, you mentioned that Korea pretty penetrated, Japan fairly penetrated, but still room to go, and rest of the world still quite greenfield. So I guess as we're looking around the near-term trajectory of user growth, how should we take those various factors into account?
I think there are two things to talk about in terms of user growth. One is we, like many consumer tech companies, report global MAU because our advertising platform is so underdeveloped and we think it's an enormous lever for the company. But from a content standpoint, from a paid content standpoint, our focus really is on what we call the app MAU. In many parts of the world, we don't even choose to monetize on the web. Where we see oftentimes a rollout of new product features like this AI personalization engine, for example, in many countries could be on the app versus the MAU. And so stay tuned for us getting better as a new public company on disclosure to help you all as investors understand what drives paid content versus what drives total MAU.
We were clear, like many great companies, one country banned us in the quarter, partially through our quarter, which if you look at the headline MAU, that was impacted. We didn't talk about a paid content revenue hit from that country banning us. I would have you know that we're in really good company, right? Company, meaning great companies like Roblox and others, we're in a similar predicament with that country. I would be careful about simply looking at headline MAU, web plus app, and presuming that it actually is a correlation to the paid content constant currency growth we post. That's one piece. On future revenue growth with regard to countries, I happen to think Japan is quite early. Japan is three times the population of Korea.
It's reported RPU at $24 was well above the $8, $7, or $8 we see in the rest of the world, including Korea. It's only 1.5%-15% in terms of penetration. We just started going there. Obviously, the rest of the world, which includes where we are today, is very, very exciting for us where we are sub-5% household penetration. I would call upon what the consumers say in the rest of the world versus what I say. Consumers say that, as I mentioned, over 70% say in North America that our U.S. WEBTOON platform is more exciting and fun than other great consumer tech platforms because they get an evergreen source of stories they can't get anywhere else.
While I'm in my 50s, my daughters in their less than 25-year-old Gen Alpha Gen Z status knew well more about this company before I started, as did their classmates, because these consumers in North America are digitally native. Sometimes people make the mistake of thinking. They ask David, like, how big is the paper manga market that you're converting into web? Guys, our core consumers have been natively digital. They've never read a paper comic oftentimes. They're just looking for a digital great story. And with a flick of their finger on our mobile app, they can see a direction of a storyline that they can be enthralled with after surfing for free for a long period of time. It's a business model that is already taking root here in North America. From an investor standpoint, how do I look at the numbers?
We reported in Q3 that our total marketing was pretty much flat year on year. And despite that, we reported average revenue per paid user, RPU growth across our entire platform, across every market. But what was really interesting is on a constant currency basis, RPU in rest of world, including where we're sub 5% penetration, grew 12%. To me, that's an indication of early signs of habituation driven by the flow of content organically without disclosing a heavy need to buy top of funnel MAU. In fact, here in the U.S., we announced in October for Q4 that we had launched a great promotion with Duolingo, who has a great audience that's complementary to ours. And it wasn't just a paid content top of funnel MAU deal. Duo, their iconic owl, brought stories to our platform. And we've talked about 7-plus million views from that series alone.
So I think you're going to see more of that in terms of how we combine content plus partnership plus just a very little bit of marketing spend to increase user adoption here where we are sub 5%.
Very interesting. And maybe piggybacking a bit off that question, just how should we think about that paid content monetization across regions and some of the impacts of some of the product initiatives that you'd been talking earlier about, like AI recommendations or anything else you may have in your roadmap?
So first, from a CFO standpoint, I love that product and content can drive user growth and RPU. From a global COO standpoint, I love that our consumers are the next generation of consumers who have found this largely organically. So I think what you'll see is we already have a robust history of tech rollout where we're most mature, like Korea. But you're seeing it now continue. An example would be in rest of the world we talked about in the quarter, having great experience with advertising product, but also advertising tech stack backend that we are now consolidating here in rest of the world. These are real examples of our tech heritage.
It's a real way to pay off, I think, the financial side of the story, which is, by the way, we posted 380 basis points increase in gross profit margin year on year in Q3, driven by mix better profit from global paid content outside Korea, which has a better margin profile, higher penetration, 24.5% constant currency growth in advertising, which has a higher margin profile. So the revenue, the profit mix standpoint from a CFO standpoint fit my role as a COO, where just creating faster adoption organically with great content, they actually create leverage to the P&L.
So I think you're going to see this as a model where instead of seeking to buy top of funnel MAU, like a social network or my old days in mobile gaming, we can focus on content rollout and product feature functionality rollout that allows us to be more efficient as we build to the bottom line and also grow our overall top line.
Really interesting. And then maybe quickly on that advertising point, you talked a lot recently about new formats and new markets in which you're launching. I guess can maybe expand a little bit on where that advertising opportunity can go, what investors should expect to see over the next couple of years, and how you see that playing into the overall business mix over time?
So first, I am not against any form of ad revenue, but I should be always seeking the form that pays off the best user experience and the most financial benefit, right? Remember, we know what she's reading. We know what that sub-25-year-old is spending 30-60 minutes on every day on average, deeply engaged, buying $0.15-$0.70 per next episode with engagement and cohort data that suggests once she picks something she likes, she reads two and a half times more and spends three two and a half times more. So if I can go to that consumer and say, in addition to programmatic, which is fine, hey, here's a great video-based high CPM ad. Say she's watching a hit series like True Beauty on our platform.
Why wouldn't a great beauty player want to expose that consumer who we know a lot about to something that is genre-specific to her deep engagement with? She watches a short video that's high CPM for the company, but it also gets her deeper in the storyline because she doesn't have to pay that next $0.15-$0.70, for example. We know she's going to continue to read. And when she finishes that series, we have 120,000 more arriving every day. She has greater confidence to access another. And we monetize in a higher CPM way. That's a real product that was pioneered in Korea, rolling out globally, doing quite well. And I think it's a differentiated product for the North America advertisers that we will be selling to directly. We haven't even at scale built a direct ad sales team here in North America or even in Japan.
And yet we're growing 24.5% constant currency in advertising. So I think those differentiated high engagement, high CPM ad products that we already have history with are the types that you'll see from us as we roll out our advertising business.
Great, then maybe the last line item in terms of the product breakout is the IP adaptations business, so kind of an interesting leg of longer-term growth there leading to breakout hits. I guess how have the relationships been with distribution partners and what is your emphasis level on this business near-term, given that you do have a lot going on with paid content and advertising?
As I mentioned, organically, we have 100 examples of our stories crossing over from our platform and becoming a great film on Netflix or on Amazon Prime. In fact, two of Netflix's global all-time top 10 performers came as original stories from us, but the reason why we don't heavily invest historically on this, we don't spend a lot of money, CapEx or production dollars, is when that occurs. Like when Marry My Husband became a hit, as I mentioned here in North America, it draws interest from creators and consumers back to, well, where did this come from, and I've never heard of this company, WEBTOON or Wattpad, and what else did that creator create?
That's an organic source of growth for our platform, which is why historically we have not, even though we're data-driven and might be able to predict more than most what actually is going to be a hit, as this format is a bit like digital storyboards. We've talked about how with $600 million on the balance sheet, we're going to continue to be conservative. But you'll see us over time place really smart data-driven bets because we knew about Marry My Husband four years prior when it was a global hit on our platform. We're not disclosing that crossover IP is something that the company needs. And I'm very careful not to, as a public company steward, promise a hit-driven business that I don't need, particularly at this valuation, frankly. But it is part of the business model.
I do think it's upside to the core in the mid to long term.
Very interesting. And you mentioned your prior experience in the mobile gaming industry. And now that you've kind of well and truly immersed yourself in the WEBTOON business and model, I guess what are some of the key similarities and differences you see from WEBTOON as a digital entertainment platform versus mobile gaming?
It's interesting. So briefly, as context, for 30 of the 30 years I worked, 20 years of it was a public company turnaround guy. Zynga, Best Buy, Del Monte, the first crisis at PG&E, my core calling was to go into public companies that may need a new business model. I would say the great hallmarks, I came out of public company retirement having focused on startups, like an AI startup I funded and Impossible Foods, where I launched the burger. The reason why I came out of public company retirement is of three things. Evergreen storytelling model where I don't have to expensively try to find the next hit that is oftentimes a very expensive one-hit wonder. A whole ecosystem built over 10 years to create an evergreen source of stories.
Consumers of the future organically looking for the product, not having to force myself on the next generation of consumers, but having this organically be product market fit globally, and the third was self-funding of the core platform, positive net income in the last quarter with massive upside in the form of advertising and crossover IP. I had not found an AI company that I can actually enhance human creativity as well, so there are other philosophical reasons why I love this company, but from an investor standpoint, those are the three things together I had not seen and the reason why I chose to leap at this opportunity.
Really interesting. Just time enough for a couple of more questions. And I'll ask one that is going to kind of be pretty broad in scope, but should touch on a lot of the factors that we've discussed over the course of our conversation. So as we're looking out at the margin trajectory, I know that there are a ton of moving pieces going in there in terms of revenue mix, investment priorities, and things like that. If you had to kind of summarize what we should expect as we're looking out over 2025 and maybe the near term, how should all of those come into play?
I like to think about profitability above the line and below the line. Let's talk about gross profit margin for a second. I mean, you know I reported 26.2% in Q3, up 380 basis points. I talked principally about paid content geography mix. As I get bigger everywhere outside Korea, as I attract local creators, folks who are local to the U.S. market through our Canvas platform, I have a mix benefit that drives a portion of that 380 basis points historical year-on-year increase. I also talk about business model mix, as I grow my advertising revenue, because I've already paid for the heavy consumption of a content I already have on the site. I have these nearly 170 monthly active users. They are spending 30 to 60 minutes. They are the right demographic.
Putting in the back end is more a function of selling it and executing against the fundamentals that are attractive to advertisers, particularly in rest of world or North America. That takes time. But even now, I'm growing 24.5% constant currency. So that drives gross profit margin from mix. Below the line, I'm CapEx light. I don't heavily need to buy servers. I remember when I was working at Zynga, one of the first decisions they had to make is like, why do we own all these servers? I don't have this problem below the line. We could argue about how to handle components of SG&A like marketing, but it would only be an option for me to choose to grow faster because I'm already growing pretty fast.
So as I think about leverage on the P&L, the geographic mix, do you believe that we are going to continue to grow in the rest of the world? The business model is, do you believe there's a big advertising business here? Let's put crossover IP, which is a great lever, but let's create that as just long-term upside. If you believe those things are true, then you understand the leverage in the mid to short term. I think for the long term, we have a long conversation about this. I don't think I've earned the credibility yet post IPO to have it. But there is a long-term story here built around AI that I think is extremely exciting. But right now, I just want to focus on investors understanding how we're self-funding accretive growth because I think at this valuation, that's all we need to talk about for now.
Great. Really interesting. And then the last one I always like to ask my companies before we break is if investors had to drill down and focus on one thing that you think is really interesting over the course of the next 12 months and is going to be pivotal to kind of the execution of this story, what should we be looking at?
Low cost, high productivity, evergreen source of digital stories that power our platform and potentially anybody else that needs a great story to turn into a film or a mobile game or a piece of merchandise.
Awesome. Well, thanks for joining us today at the Raymond James Tech and Consumer Conference. And David, great talking with you.
Likewise. Thank you.
Thank you.