All right. With that, we're going to move on to our next session. It's my pleasure to have the team from WEBTOON Entertainment here, David Lee, CFO, and the IR team. David, thanks so much for being part of the conference for the second year in a row because you were here last year.
I'm very happy to be here.
I'm going to read the safe harbor to kick us off. Our remarks today will include forward-looking statements and actual results may differ materially as a result of various factors. Please refer to the company's SEC filings, including the risk factor section of the company's most recent annual report on Form 10-K. David, the company's been on quite a journey since going public. For those who don't know the story as well, why don't you talk a little bit about the market opportunity that WEBTOON Entertainment is going after and how you're thinking about building out this platform for the longer term?
Great. Thanks for having us here. I'm not surprised if a lot of you've never heard of WEBTOON. I mean, if you happen to be in the coveted Gen Z demographic, I'm sure you have. In essence, WEBTOON is the only global storytelling hub that has 24 million creators all around the world telling interesting, unexpected stories in a format called a web comic to over 155 million monthly active users. This format is the purest form of a story invented by our founder, Junkoo Kim. It's why there are 100 examples where you may actually know of us through a movie on Netflix or a hit on Amazon Prime or even in the box office, which I can talk to you about. In terms of the market opportunity, the biggest opportunity for us is right here in the United States.
We're an everyday part of people's lives in places like Korea, where we have 50% market penetration. We are now the number one app in Japan, including mobile games, for the first six months of this year. We're going fast there. We're just getting going in our largest opportunity here in the U.S. The good news is Gen Z consumers here already love our product. The bad news is most of you, I can tell, in the room have never heard of the company. We have an awareness gap, which is part of our role at this conference to try to fix.
Great. Against that backdrop, maybe build on that and talk about what are the key pillars of your growth narrative and how to think about some of the initiatives you're putting in place to execute against it.
I think one of the most important parts of our growth story is something I don't think anybody else has, which I remember doing turnarounds in mobile gaming and in consumer tech where I was really tired of buying the next future hit because they had had a hit before. We have an evergreen storytelling hub, this 24 million group of creators enabled through AI and technology. We produce 120,000 stories per day, fresh and new. Because of that, our consumers here in the U.S. tell us that 77% of them tell us that we have a more fun experience than many experiences that they could be on other great apps. The reason is they simply can't get the stories they see on our platform anywhere else. We take that great evergreen source of stories.
We pair it in a format that is data-driven to tell us what could be a great movie, what could be a great mobile game, what could be a great piece of merchandise. With all that information, we like to think we de-risk the ability for amateur storytellers to become great professional storytellers on our platform. It's taken us over 20 years. Our founders started this business over 20 years ago, a labor of love. Now we have escape velocity. We have enough creators. We have enough consumers to be delivering last year $1.35 billion in net revenue and at a positive operating profit. Those are the keys to our business.
Great. You referenced earlier a little bit about how to think about current market share penetration across Korea, Japan, and then obviously this rest of the world, which is inclusive of North America. When you look at the North America opportunity, which is the one, as you articulated, where there's the potential for the largest growth in users, talk a little bit about what you need to get right in this market, either on the content side or the user acquisition side, to capitalize on that opportunity.
I think what spans across all of our regions, thankfully, is that Gen Z wants a good story. Increasingly, they don't care what language it originated in. They're looking to discover on their own using technology something they consider to be a story that they found. The way this works for us in North America, the reason why we showed 19% web comic app MAU growth here in the U.S. and other English-speaking countries is we call her Maddie. Maddie, our typical consumer, gets to surf this immense digital universe of stories, 120,000 stories coming every single day. We've used AI to be able to tell her which story she might like. Only when she wants, with no pressure, she gets to see the next episode that breaks for $0.15 to $0.70 on average. No heavy subscription, no push for merchandise.
When she wants to see the next story, she pays. That patient business model allows Maddie to pick stories on her own terms. We find that as a result, she and other countries we know will tend to read and pay to read three times more over a period of a few years. That patient approach allows us to be confident when Maddie completely finishes a story. By the way, these story arcs sometimes span 10 to 15 years. She finishes a story. I'm not worried because I got 120,000 more coming. Even as her tastes change, she'll have more confidence finding the next story she wants. I think that process of meeting the Gen Z consumer where they want to be met is important.
The other piece is each of our regions, Korea, Japan, and what we call the rest of the world, don't create stories to be published within their region. They create stories and publish across all regions. Each of these epicenters have creators that now have the ability to publish in all the languages we have as a global company. That is a proposition that many creators don't have with other companies and other formats. Being able to have that signal, I think, is important for both the creators and the consumers.
Got it. Maybe turning back to your more mature markets compared to the rest of the world, how does that algorithm or how does that paradigm look when you think about driving user acquisition and user engagement trends in a market like Korea or Japan, where the format and your platform are further along that journey?
Yeah, it's a great point. Each market is different. Interestingly, in Korea, where we have 50% of the market penetration, we're an everyday household name. There, when you saw in our last quarter, we posted 9% constant currency revenue growth. How did we do that, to your question? A large amount of it is that we're rumored to be powering most of the great K-dramas that get released on Netflix and other off-platform sources for great movies. In fact, there's a box office busting record hit called "My Daughter is a Zombie" that is rumored to be coming from us.
Having the ability, when you're in 50% of the market, to spawn not just great stories on your platform, but also to spawn great stories in the format of a box office movie or something you see on Netflix or even a mobile game allows us to leverage the trust we've been given in Korea and demonstrate that 9% growth. Now, MAU, when you are that big in a market, will fluctuate in bearing. We also like to look at ARPU in mature markets because if you can create better products, we just released, by the way, in I think the last week, a new short-form video product in Korea called "Cuts." This allows any user, any UGC, any consumer, any creator to create a short two-minute short-form video as another form of storytelling.
That product relevance, the ability to tell stories not just on our platform, to be able to advertise in ways that feel authentic to what they're interested in reading, that's all part of having a strong market presence like Korea for that 9% growth. Japan, very different story. A couple of years ago, we were not the market leader. We became the market leader really in the last 12 months. We did it because creators in Japan have the ability to publish in any language and in any genre. They don't have to be stuck just publishing in Japanese in manga. With us, a creator can choose to go global across the world with us, but also cross over into TV and film. That's allowed us to grow all metrics, right? ARPU, top of funnel MAU, as well as strong revenue growth.
That's why we're still number one in revenue, even including mobile games. Here in the U.S., by the way, in Japan, we're sub 20% market penetration growing fast. Here in the U.S., we're sub 5%. While I know that consumers are already enjoying our story, we need more of them, which is why part of our formula is to not just let them see our stuff on big streamers like Netflix and Amazon Prime, but it's also to do great collaborations with partners like Disney or IDW, which we recently announced.
Yeah. I want to build on that because I think that was obviously the big news behind the last earnings release, the parallel announcement of the partnership with Disney on the content side. Maybe bring us in a little bit to the details of that collaboration. What is the content offering exactly going to look like? How would we expect it to drive users on the platform going forward?
The first point that I'd make is we feel very grateful to have someone to collaborate like Disney. You know, they have the opportunity to partner with anyone. We think it's a testament that we're choosing to work together. Having the ability, we just released "Star Wars" on our platform, I think, Saturday. A couple of weeks ago, we launched "The Amazing Spider-Man." For the Gen Z population that we're the leader of here and globally, these stories actually are fresh. They're new and different. I hope that over time for our partners, and it hasn't just been Disney, we've long partnered, you know, IDW. We have great stories around Godzilla and Sonic the Hedgehog and the Teenage Mutant Ninja Turtle. For us, these are ways to hasten the pace for our Gen Z new consumers here in the U.S. to discover stories they couldn't find anywhere else.
Because we already have our own exclusive source of original stories from our own creator platform, we have the ability to partner with great firms to tell their stories too. In the case of Disney, what's even maybe more exciting for us is we have the ability to tell original new stories in the theme of their franchises, which are quite extensive. For us, this is just a way to continue that 90% web comic app MAU growth here and to deepen the relationship with Gen Z as we expand.
OK, understood. Building on that, I think one of the questions we've gotten coming out of the Disney partnership from investors has been the mix of content on the platform. I think initially, when you IPOed, a lot of people viewed you as an output of the creator economy. You were enabling some sort of mix of amateur and rising professional creators to build their brand and build content. Now there's licensed content as well. How do you think about striking the right balance so that you create an array of supply that continues to drive or fuel engagement on the platform?
I think for us, making sure that our consumers and our creators have the best opportunities to grow is the bright shining light that our founder, JK, set. Specifically on Disney, 100 great reformatted stories on our platform give our consumers the ability to see as a web comic a story they didn't know. Gen Z may be relatively new to some of these stories. For our creators, the ability to tell original new stories themed from a great story that originated within the Disney company is a new avenue. I think it gives both sides of our marketplace, the consumer and the creator, more opportunity for the company and for shareholders. It allows us to speed up what I think is inevitable, which is we are becoming mainstream in the U.S.
I think of deals like the ones we do with IDW and our collaboration with Disney are perhaps statements that we are becoming mainstream faster. I think that's good for the entire ecosystem and our investor base.
OK, understood. I do want to stick with this theme of content, though, and maybe pivot towards the IP adaptation business you have. I think one of the areas that I think is still relatively underappreciated, you alluded to it a little bit, as you being the source material for a number of hits on the platforms. Talk about how content can get generated, built, and scaled on your platform, but then could possibly have a life off of your platform and how that informs scaling and building the IP adaptation business over the long term.
I’d like to think we have the lowest cost, most de-risked way to generate future movie hits that I’ve ever seen. Let me explain why. We have 24 million creators, the vast majority of which have full-time jobs. They’re graphic designers. They’re kindergarten teachers. A great example is Rachel Smythe, a New Zealander graphic designer, tells her story on our platform called Lore Olympus. I never would have commissioned or thought that her incredible story would be something that I would have proactively purchased. I don’t think anyone knew how many people would resonate with her as a creator.
Enabling her to go global on our platform, enabling her to receive a living as a creator on our platform, but then leveraging her success on our platform to see her rise as a New York Times bestselling author in print, rumored to be soon announced as a great featured animation release on one of the major streamers. This example is not uncommon. We have 900 examples of crossover IP. We have 100 examples of rich film adaptations and series that originated as stories on our platform. We have data that tell us when "Marry My Husband" became a hit on Amazon Prime in 2024, four years prior, we knew it was going to be a success as a web novel that we then turned into a global web comic.
This ability gives us a way to democratize storytelling, to give anyone the ability with data and success to go far beyond our own platform. It’s because we fair share the revenue. $2.8 billion shared with creators from 2017 to 2022 is inherent in the business model and the proposition to creators. I think that was the genius of our founder, JK, our CEO. He built something 20 years ago that would reach a level of scale where we could enable a story to live outside our platform well and would be perhaps one of the lowest customer acquisition cost vehicles. When someone sees a hit on Amazon Prime and they want to know where it came from and come back to WEBTOON, it’s a beautiful way for us to pay off that LTV for that customer acquisition cost.
Understood. Sticking with monetization and the business model before we move to other aspects of the business, advertising. You're in a process of trying to build and scale an advertising business, especially in maybe this part of the world. Think about what advertising presents rather than commerce presents as an opportunity for monetization over the long run for the platform.
Unlike a lot of businesses that I've come across, this is the only one where I see advertising actually possibly enhancing the consumer experience around paid content. You know, when Maddie is reading a great series around a romantic comedy, let's call it "True Beauty," which is one of the hits on our platform, being able to show her a sponsored alternative ending from a major beauty brand feels really consistent with her experience. At the same time, for the advertiser, giving the opportunity to have a high CPM, very targeted fit with a Gen Z consumer that is voluntarily choosing to spend 30 to 60 minutes reading content they can't get anywhere else is a differentiating offering, I think, for the North America advertising market.
I think for us, the consumer experience, and then financially, I will tell you, I feel the company has worked hard to already pay for the evergreen storytelling content engine. We already have the right consumer spending 30 to 60 minutes. If we were to achieve the nascent opportunity here in North America for advertising, a lot of it drops to the bottom line. For me, North America advertising is more than just another revenue channel. It's a great revenue channel. It will drive a lot of profit. It could actually speed content consumption and adoption by this new emerging group of consumers here in the U.S. We're very early. We have great experience in Korea. We're growing fast in Japan. We're just putting the pieces in place here in the United States. It could be a step change function once those pieces are in place for the business.
OK. Obviously, the theme of the conference has been a lot around AI. You have a lot of different places in your ecosystem where you can apply AI content creation, content distribution, the way the consumer interacts with your platform. Talk about some of the initiatives inside the company that are both external-facing and internal-facing that are currently being driven by AI.
From the very beginning, when our founder and CEO, Junkoo Kim, started the company, he started from within a great tech company called Naver in South Korea. Our heritage was always built on tech. In fact, I'd like to think we have 100 of the best AI technologists who have been fully dedicated to us for some years. This is not a new concept to us. I also think from an asset standpoint, we have a business model where we can protect the human creator because we share in their upside with the revenue share model we have. I want to be clear that we use technology to protect the human creator and protect the consumer. Right now, we use a lot of our technology to fight piracy. We make our content more discoverable in a personalized way for the consumer.
We have tools to reduce the burden of having to produce the images and the storytelling components for a successful global web comic. I also think that we have the potential to do even faster and better what you're seeing the consumer ask for. You know, "Cuts," we just launched video episodes in the U.S., being able to not just read, but for Gen Z to watch video. I mean, what is animation or video? It could be viewed as a series of static panels, which we have in a web comic, put together with sound in motion. I'm really excited about us being one of the very few AI and tech companies that will defend, promote, and enhance human productivity and have a business model that allows for it to be shared with the creator and create financial result.
That's the idea of why we use the tech we have in the business model.
Maybe just one follow-up. It came up in some conversations I've had with other companies like yourself that are in and around the broader media ecosystem. It's really about how to strike the right balance with AI because you want to make creators more efficient, but you don't want to disintermediate creators. You want to create efficiency for yourself as a company and scale content. You want to keep an ecosystem that's highly incented in continuing to be a thriving creator economy company. How do you strike that right balance?
I think it's easier for us because I believe human storytellers are still the best storytellers. When it comes to how quickly we can create support images to allow a human storyteller to maximize the impact of their story, we are aligned with the human creator and our tech. For us, because we are one of the few business models that shares the upside with our creators, there is less debate at the outset about what's inbound and out of bound. That doesn't mean it's not difficult. I think we are very sensitive to the idea that we always protect the human creator and enhance their productivity versus threaten them. For us, that's good business. It's a lot easier, I think, for us because we have a lot of creators, we have a lot of consumers, and we have a lot of data.
I think for startups or others who are talking about a future use of disruptive Gen AI, that's a different conversation and one that I don't have to have. Right now, I can defend our human creators and give them more productivity and deliver great results to investors.
OK, understood. Pivoting to that theme, obviously, you've got growth investments you want to make. You're trying to scale products and platforms in the years ahead. How do you think about striking the right balance of making sure these investments hit, and you're still in the mode of continuing to prove out some of the profitability dynamics to investors as well? How do you think about striking that right balance without forestalling some of the growth initiatives, but then also delivering what folks in the audience want from an investment community standpoint?
One of the things we talk about a lot internally at the company and that we're beginning to share with investors is that as we grow outside of our origin, as our paid content picks up more scale here in the U.S., as our advertising business scales outside of our origin in Korea, we actually have a higher rate of variable profitability. By just growing in one of the most attractive markets, obviously here, what we call the rest of the world as well, we actually deliver improved profitability in our view. That requires a ruthless management of overall G&A, which we like to think we do. It requires deliberately investing when we think we have data suggest we have a winner. One example is we are deliberately investing in the United States in marketing.
It's driving the 19% web comic app MAU growth in English that we've seen for the last two quarters. With the announcement of great partnerships with IDW and collaboration with Disney, we think it's a good bet. Yet, you're not seeing us use any of our balance sheet cash, that we are self-generating enough within the company to deploy very considerable investments for future growth without depleting the balance sheet. We don't intend to hoard cash. Our view is that we need to maximize shareholder value. We are very, very careful to self-fund as many of the important bets. We're lucky because as I execute better and better outside of our origin, I improve the company's profitability as a function structurally of the way our cost system works.
OK, understood. I wanted to turn next. Maybe ask a different way because we haven't gotten this question a lot from investors. When you think about some of the content deals you've structured, is there any help you can give investors to think about what impact that might have on gross margins over the shorter period of time? We're getting that question a fair bit.
First, I think I can rely upon what we've already discussed. I think the collaborations and the partnerships are great ways that fit into our existing business model. We haven't disclosed any upfront payments or onerous terms. We haven't talked about a change in our fundamental structural profitability. I'm still happy to talk about how growth here in the U.S. can improve the company's overall profitability. All of that is unchanged, even with great disclosures and announcements around IDW and our recent collaboration with Disney. I think that's all I can say to help the investor at this point. I feel very fortunate to be able to keep the original business model that JK envisioned and have confidence that as we execute against it, we will drop improvement to the bottom line.
OK. Building on the growth investment discussion, how should investors think about capital allocation? What are the priorities for the capital you have on your balance sheet, which you are a well-capitalized company relative to what future capital being generated by the business might be aimed at as priorities?
You know, we think about the capital we have in our balance sheet, but we also think about how much excess cash flow we generate every period and how we use it. The three areas of priority have always been around core technology that enables more engagement by consumers with our creators. AI would fit into that. The second is expansion where we see proven product-market fit. I think we've talked about what we're seeing here in the U.S. and how excited we are to expand this web comic app MAU growth here in the U.S. The third is to ensure that we are setting ourselves up with infrastructure that allows us to grow for multiple years.
We talked this year about how we saw explosive growth in Japan in 2024 and how we were taking 2025 to set up that business to be a rocket ship for 2026 and beyond. I think those are the ways that we've talked about using the self-generated cash flow that we have to continue to deliver shareholder value. We look at every period at stock buybacks. We are very active in understanding what we could buy from an M&A standpoint. We have no ideology around keeping a large cash balance. Right now, we believe the best thing for shareholders is to manage the cash we have, as I described.
OK. We only have a few minutes left. I want to turn the floor over to you on sort of a bigger picture question. Obviously, we've talked about a lot of themes on stage so far. When you think about the three or four biggest themes that you're leveraging as a company and how you're aligning your strategic priorities to sort of align with where those growth drivers are in the broader industry, how would you frame that narrative for investors as a sum-up point?
I think the first theme is around our origin as a technology company to reduce the risk in generating an ongoing set of storytelling hits, both for consumption on our platform as well as for consumption outside our platform with all of our partners. I think the second is that at our core, we are about enabling creators to tell great stories to consumers, that we will always protect both sides of the flywheel for the long term. I think the third is that we recognize to many investors that we are poorly understood by you. That's our burden, not your lack of understanding. I hope over time that the results we post as a new public company demonstrate that we are different from most and that you may have to look a little bit further into us before you understand our core.
Those are the three things that we're talking about these days.
OK. David, always appreciate the opportunity to talk to you. Thank you for being part of the conference again. Please join me in thanking WEBTOON Entertainment for being part of the conference.
Thank you.