All right. Great. Morning, everybody. We'll get started. I'm Dae Lee, JP Morgan's internet analyst. We're pleased to have with us WEBTOON's CFO and COO, David Lee. WEBTOON is a leading global storytelling company that connects 27 million creators to 145 million monthly active users. WEBTOON pioneered a new form of digital storytelling with long stories that are serialized into short-form, vertically scrolling, image-based web comics. WEBTOON's mission is to be the world's storytelling technology platform empowering creation by anyone for everyone. David joined WEBTOON in 2023. Prior to WEBTOON, David held leadership roles at various consumer and tech companies, including as founder and CEO of Inevitable Tech, the COO and CFO of Impossible Foods, and CFO at Zynga. Welcome, David.
Great. Nice to be here.
All right. David, for investors less familiar with WEBTOON, can you walk us through the flywheel, the creators, users, content monetization, and what makes this platform's competitive moats so difficult to replicate?
Yeah. Well, first, I think you did a pretty good job, Dae, I appreciate that you know the company well. Let me back up. Many who may be listening in may not fully appreciate who we are, but if they have any Gen Z friends, I bet their friends are actually already on the platform, Wattpad or WEBTOON. What we really are is we're a storytelling engine. On the one hand, over the last 20 years, our founder, Junkoo Kim, started with a mission to cultivate creators. We have 27 million creators, the vast majority of whom are amateurs. They have day jobs. Later I'll give this example in greater detail, but one that I'll mention was a great creator in New Zealand, as an example, named Rachel Smythe. For those 27 million creators, we have all of this technology.
We recently announced an upgrade to our Canvas platform. If you've got a story in your head and you've got a full-time job, in case of Rachel Smythe, full-time graphic designer in New Zealand with a story that she didn't know anyone would want to hear or understand. Frankly, I would never have guessed her story, called Lore Olympus, would resonate. She created her story on Canvas, like many of our 27 million creators. We can see, because we have 145 million monthly active users who spend an average of 30- 60 minutes per day looking for the next hit story, we can see who in the world loves it. These monthly active users are, the majority of whom are not in our country of origin, Korea or in Asia.
In between all of it is this flywheel where we can use our tech to personalize recommendations for those readers. We can create tools that allow our creators to be successful. Once they are, they become franchise stars. Their lives are changed. Rachel Smythe became one of them. These franchise stars have the ability to have a global voice, and oftentimes they live outside our platform. In the case of Rachel Smythe, Lore Olympus became a New York Times bestselling book in print. She was just recently announced as being a featured animation release on Amazon Prime, and she's just one example of that flywheel that I mentioned. Let me briefly just also cover, that flywheel is now large enough to be self-subsidizing and sufficient. Last year we did about $1.4 billion in GAAP revenue. In the last three years, we've had positive operating cash flow.
There'll be a quarter or two when there's some fluctuation. We're excited to be publicly listed because it gives us global governance and it shows that where we are just starting to get going, the largest TAM, what we call rest of world, places like North America, we're just getting traction. We're getting traction with Gen Z, the most desirable consumers who want to find a story from an unexpected source out in the world. Let me pause there just as a quick intro before we continue on.
No, that's great. I'm not quite Gen Z, or probably not in your main demographic. I can attest to spending more than 30 minutes a day, consuming interesting stories on your platform. You guys should all try it out. Okay, that's great. When you look across your business, you operate across Korea, Japan, and rest of world. We talked about 145 million monthly active users. When you look across your geos, where do you think or where do you see the biggest opportunity from where you are today?
Well, it's great to have a global portfolio. Let me kind of cover what we describe as Korea, Japan, and then this very big geo, rest of world. As I mentioned, Junkoo Kim, our CEO, Founder, started this thing initially out of Korea 20 years ago. If you look at Korea, it plays a really great role. It's a foundation for the company. We have nearly 50% market penetration. If you're in Korea, we are arguably an everyday part of your lives in digital entertainment. We're like, I don't know, the Kleenex of storytelling if you're in Korea. Articles have been written that not only are we that penetrated on Naver WEBTOON, our platform there, but some have said that we create more than half of the major hit K-dramas on streamers like Netflix. They start as stories on our platform.
There in Korea, where you have so much market penetration, it's critical to create a healthy, ongoing source of growth. I'm proud that Korea, as for example in the last quarter, first quarter, grew 13.9% on a constant currency basis in paid content. It grew it through strong MPU growth. I'm pleased with the health of the app MAU. Sometimes total MAU doesn't reflect the actual business health of the business. We look at things on an app basis and on a web comic basis. It's a great source of motivating content and creators that can be exported to all other parts of the world because people no longer think about origin as a liability.
We've said nearly 120,000 stories arrive every day to our platform, and our Gen Z consumers in the U.S., for example, are looking for the next hit story, even if it comes from a foreign language or a foreign part of the world. That's Korea. If you look at Japan is where we essentially, around the time of our IPO in mid-June, said let's show that we are relevant beyond our country of origin. Japan, which has three times the population of Korea, where now we've grown to be a little less than 20% of the market penetration. As you saw, if you knew us back in the 2024 time period, it was a rocket engine growing double digits.
For the last three quarters, we said, okay, we've got to keep this rocket engine growing into perpetuity because we think that it's a big market for us. As a result, we took a few quarters to invest in what we call infrastructure. It meant that we couldn't invest our people and time and growth, it meant that you see a pause in Japan's growth. We thankfully have announced that infrastructure is complete, that project, as of the end of the last quarter Q1. We're excited to show that we can deliver what we already have in a really interesting market. What's great about Japan, just to cover it is, if you think about consumer dynamics reflected in ARPU, you know that where we've been for 20 years, people spend about $7.80. This is the ARPU in Korea on a monthly basis.
In Japan, it's $22.50. Japan grew so fast as our second demonstration geo that it is now 48% of the total company revenue. It's contributing on a constant currency basis, $121.6 million out of the $326.4 in Korea, sorry. Japan is $158.6. Japan is bigger than Korea. What we're seeing in the rest of world, which is everywhere else, is that our total MAU is about 100 million in Q1 of our MAU out of the 145 in the rest of world. A lot of that we don't choose to monetize. It's from parts of the world where we love that people are writing stories that can turn into hit movies.
If you focus on our English platform, where we really care, people writing in English, consuming, for example, in North America, we have set that up for growth too, because we're seeing English web comic MAU grow 3%. Where we don't disclose the English web comic MPU. MPU grew 3%. We don't disclose the MAU. It's great to see first the MAU grow for our English platform and then the MPU grow for that same part of the world, so that eventually it turns into a very large business. We're sub 5% penetrated in rest of world. Unlike a lot of other businesses, I think we have a lot of upside geographically as we know the consumer in the U.S. really wants the stories we create from anywhere in the world.
Okay. That's great. I guess with that said, when you look at the platform from an engagement perspective on the consumer side, how do you feel about the health of the platform? Meaning you said you've done some, I guess, plumbing work in Japan to make sure that platform is better suited. In Korea, it's a stable market. Rest of world, you're still growing. Are there other work that needs to be done to see, let's say, a more stable engagement growth from a MAU perspective? Following up on that, how do you feel about the MAU potential of those, or MPU potential of those MAUs?
Good question. Let's talk about paid content for a second. I'm going to put advertising to the side. We'll come back to that. We have largely completed, I believe, the foundational work to see the bread and butter, paid content is 80% of our revenue, of our paid content business continue to grow geographically. Let me explain why. First, we talked about Korea being the most robust flywheel, that 13.9% constant currency paid content growth. You've heard about Japan. We announced for rest of world an overhaul to our creator-facing tech stack. We call it Canvas. This is a pretty big rollout for everywhere other than Japan and Korea, where we've improved the ability for creators to be able to write stories that can turn into hits.
This is really important for scaling paid content globally because it's the heart of the reason why we have unique content. Those 120,000 stories arrive every day. They come from these 27 million creators who oftentimes are amateurs on Canvas. Having that completed, and it rolled out in May, is a critical infrastructure piece that we need to speed growth in rest of world. When you think about things like external deals that we're now ready to support with this proven product market fit, we'll probably come to it later, but the deal we announced with Disney. Disney took a 2% stake at $12.29, and we're on track to announce the launch of a brand new to the world consumer platform that leverages all of their content, their amazing content, later this year.
We've already been hard at work creating new vertically scrolling, we call them reformatted web comics from Disney on our U.S. platform. I think in the last quarter, we can point to a few examples, a couple from Star Wars, one from Daredevil, an original that featured Mickey in the F1 series. You only get to partner with world-class folks like Disney when you have the readiness and infrastructure product market fit to take that next step of growth. We're excited. Now, recognize I'm not guiding to that growth in the Q2 because it's out ahead of us. From a source of content from these indie creators on Canvas, and then kind of an indication of readiness on our platform with partnerships like the folks at Disney. Then I was recently just in Vancouver with Warner Bros. Animation.
Another example is we're making progress off our platform. In Japan, we announced a slate of 20 anime that is on track for development in 2025. We announced a deal with Warner Bros. Animation, as I just mentioned, with a slate of three, and now recently we broke news with another slate of four great projects. These four projects are not traditional sourced-from-Asia projects, but great animation projects from our world in partnership with them that are focused on young adults, and oftentimes have genre focus that may surprise you. When you have external deals set up, you have internal infrastructure that's ready, and you have product market fit. You have MPU growing and a true desire by Gen Z, for example, in North America, to find their next hit story. I think we're setting up the flywheel for growth.
Okay. I guess at a higher level, do you think there's more opportunity on the MAU side, meaning could you get more consumers to read your content, or is it more about monetizing those users better?
Well, again, I think the answer depends upon geography. I think Korea will continue to be a source of health and growth, but it does not require going higher than the 50% market penetration in MAU. I think there's so much that we can do as a strong player there in terms of the three areas that Junkoo's mentioned in his most recent shareholder letter. Focusing on digital characters that can interact more and create engagement between readers and between readers and creators. This idea of focusing on the social community part, which is yet to really be developed, has great upside, in my mind as well, is another kind of important area of future growth. This example of how our stories can be off platform in the form of animation and anime, which then can drive strength back to our flywheel.
I think you're going to see those drivers across all regions, but particularly start where we're really strong, which is in Korea.
In Japan, I suspect you will see both app MAU and MPU and revenue all grow because we're very competitive there. The consumer there is well accustomed to digital content consumption. I think we've proven, actually, in the 2024 period, that we know what it takes to have double-digit growth. Rest of world, it's all of the above. The TAM is so large, but we are so under-penetrated. If we're 50% market penetration in Korea, sub 20% in Japan, we're sub five, maybe even sub three, however you define rest of world. There, I think you're going to see us grow, and you're going to see consumers be introduced to our stories on Amazon Prime and Netflix, or in partnership with Warner Bros. or Disney, and then come to the platform as much as you're going to see organic growth from our platform in places like rest of world.
Okay. All right. That's great on the consumer and engagement side. You touched on the creator side a little bit, or I guess the bigger creator in Disney, but when we look at the creator ecosystem more broadly across all of your creators, you paid out, I think last quarter you said $2.7 billion to creators over five years, and you're investing roughly $50 million this year in creator support. Can you walk us through those numbers a little bit, like what they mean, and how the rev share works with the creators, and why do creators choose you guys over other platforms?
Yeah, that's a great question. First, we are very different than a lot of people talk about creator economy and creator rev share. We benefit from the vision of our Founder and CEO, Junkoo Kim, where he said, "We will fair share revenue on future success we can't yet estimate." Creators really feel aligned to us, whether they're amateurs on Canvas where they have no idea if anyone will like their story and graduate to become franchise stars or not. It allows us, by the way, to embrace new technology together, too. I think a lot of other companies don't have that alignment on the IP, the source of the IP. We like to give our creators fair share upside in a rev share, which shows up in our variable costs, our cost of revenue. It shows up in our gross profit margin.
We're going to come back to the numbers. That's where that $2.7 billion number of creator rev share comes. It's because we're growing incremental growth for the company and sharing a portion of it. On the one hand, you say that is incredibly generous, and I think it's critical, and it is generous. It's why we continue to be the destination of choice. That's why creators choose us. No other ecosystem has that level of commitment, and no other ecosystem has proven track record. We've had 900 adaptations of stories that start on our platform. They become hits in multiple languages on our platform, and then they become movies or games. I think 100 of those 900 are rich film adaptations. I think two of Netflix's all-time top projects ever came from us, one in the Spanish language and the other in Korean.
A creator can look at us and say, "Oh my gosh, they're going to empower me. They're going to use their tech. They're going to set me up for success because they're aligned, and they have a proven track record of allowing me to be successful in this emerging format called a webcomic or web novel," but also any way a story can be told. Let's get to the numbers. I think what people don't understand from the release, and I want to clarify this, is the $50 million that we talked about is already fully funded and invested in our existing cost structure. There's no incremental investment. Inherent in the financials of the company for years now has been that enduring commitment. We're just highlighting what it's already fully funded.
In fact, if you look at gross profit in the most recent quarter, this 25% gross profit margin improved by 390 basis points year-on-year, in part because as we grow a business for a creator, let's say they start in Korea, and they're not sure if their story has resonance, and they discover through us it does, and we help them take it globally. Well, we benefit disproportionately more financially because we do more of the heavy lifting. As paid content grows everywhere outside of Korea, my gross profit margin should improve from a mix standpoint. As a result, when I think about the total company financials, I don't feel like we have to overburden the P&L.
I think we love the fact that we have cash and marketable securities, short-term marketable securities of about $600 million, and operating cash flow has grown for the last few years. That still includes investing the accretion that naturally occurs through the P&L as we grow outside of Korea. Our advertising business, if you think about it, the cost structure is paid for. We can share the revenue upside with our creators and still improve the profitability for WEBTOON.
The engagement, the eyeballs, the engine of new content, that is already paid for, so to speak. I think there's natural accretion for the company, despite a very deep preexisting commitment to share with creators that are future upside.
Okay. That's great. Kind of beat me to my next questions, which were about the numbers, revenue growth, and profitability. Before that, we covered, I think in good detail, of your flywheel on the creator side and the consumer side. Let's dive into the numbers a little bit further. Looking a bit more near term, you talked about growing double digits by 4Q. You guys are in the low single-digit percent range right now. Could you bridge what you're growing at right now to that double digit, and what are, I guess, two or three biggest swing factors in that aspiration?
Yeah, that's right. I think, first of all, this double-digit growth by the end of calendar 2026 is the reference from the Q1 call. As I mentioned, I think of growth as having two different dimensions. One is the heart of the company is paid content. We've already described, and you now know how big Japan and Korea are. I think my confidence, one, you see Korea already operating at 13.9% paid content, constant currency growth in the post quarter. Japan admittedly has been focused more on setting up for future growth and infrastructure, but I have confidence in the return to the growth in Japan because we've demonstrated it before. It's a pretty strong market for us, and there's a lot more room to run.
I don't know that I need to have a huge sudden increase in growth in Japan despite its size, because when you think about advertising and the impact of crossover IP, while they may be only roughly 20% or so, give or take, in a quarter of our total revenue, we are lapping periods in the back half of the year that allow me to feel very confident about that commitment.
Beyond just a set of numbers for a given quarter, even if it's towards the end of the year, I think what it reflects is a belief that we're setting this business up for growth beyond in 2027 and 2028. We talk about the investment in Canvas, the deals yet to be launched, like the collaboration with Disney.
The anime and the animation where slates have been picked and are being developed. We're trying to run the business for long-term shareholder value, which I believe does test the patience for many of our investors. I think this commitment to double-digit growth isn't just about Q4, it's about realizing the upside for investors longer term as well.
Okay. Is it fair to think that all three segments of your business, so paid content, advertising, and IP adaptation, all kind of have equal contribution to that double digit? Is there an area where you feel particularly more confident about?
Well, I haven't given disclosure in depth, but I would say I would advise that investors look at the composition of the revenue today. 80% is paid content and 20% is advertising and crossover IP. In previous quarters, crossover IP, even though we have a great slate, I'm very excited about our slate, there's variance in that number quarter to quarter.
You saw even last year we had huge hits in Korea, for example. Those arrive in a quarter versus another. I think I would look at the composition overall because advertising, for example, is the part of the business in the rest of the world that we are taking more time to deliver, because we really want to pay off more creators and more consumers, for example, in North America in the paid content flywheel first.
That's 80% of our business. I think if you look at our composition today, it'll give you an indication of the composition of growth down the road.
Okay. That's fair. Just quickly on the IP adaptation side, it's historically been pretty lumpy. I guess, one, what kind of visibility do you have in the IP adaptations pipeline? Is there a way to think about what a potentially normalized growth rate of that business could be given the lumpiness?
Well, I think there's no getting around the fact that launching hit feature films is lumpy. The ability for anyone to call, whether it's in one month or another, is hard to reduce fundamentally in the nature of the business. For us, having it be roughly 7%-8% of the revenue base has meant that it's more the lowest form of customer acquisition cost than it is an area of focus for accretive revenue in the sense that when someone sees a hit story, like maybe it's "Sidelined: The QB and Me," which came out as a hit in the U.S. on Tubi that was originally a Wattpad story, or its sequel, we think it's a healthy way to increase attractiveness for the creator and a really low-cost way to create awareness for the platforms in new markets. That's why we're committed to it.
Okay.
I think our line of sight to the impact on our revenue from these projects is getting better. I don't want to discount the fact that that is a fundamentally lumpy business.
We're committed to it because we think it has so much upside for our creators and our consumers, and for us financially. With the cost of that is you are going to see some quarterly change and volatility.
Okay. All right. That's helpful. Let's talk about profitability next. You already talked about gross margins, but say that line has been somewhat volatile as well. 1Q, like you said, you guys expanded that by almost 400 basis points. Where does gross margin go from that level? Is this a stable base from which you'll continue to expand given your cross-border content translation and all of that? I guess give us a way to think about your gross margin going forward.
Yeah. It's a fair question. It's a little bit challenging because I don't have long-term guidance out, but let me see if I can answer it in the context of the quarter. Let's talk about quarter one gross profit margin. That 390 basis points improvement year-over-year. In the script, we kind of talked about having three pieces, two of which I think investors should consider to be ongoing and estimate on their own how much it will grow or not. We talked about a $3 million improvement specifically in Japan associated with the Smartphone Act that was passed by their government in December of 2025. It's just lower App Store fees, not just for us. By the way, it's a wonderful thing for me to see a tailwind like that emerge without having any pressure or negotiating leverage exerted by me.
This was just a wonderful tailwind that we will benefit from. I want to be clear, the gross profit margin accretion that I mentioned here, we will likely want to reinvest back for accretive growth in Japan, because I'm very bullish there. If you look at the numbers, that was a portion of that $390. More importantly, think about the business model. We talked about a second portion, which is what we call mix, but it's as our revenue mix grows in paid content outside Korea, and eventually, while delayed, our advertising will grow in the rest of the world, they're highly accretive to the model.
Part of the answer to your question is, folks have to estimate how fast will we grow outside of Korea. I believe it's an enormous part of the long-term investor story. Which is why I believe that as we grow in the U.S., as we materially deliver on this 3% MPU growth in WEBTOON English, our platform here, for example, you will see improvement to gross profit margin. If you think below the line, we're not a heavy CapEx, PPE company. I'm not building cloud infrastructure personally. I think a lot of that question on profitability is, do you think we can grow outside Korea? If you do, I believe that means it drops to the full bottom line, starting with gross profit margin. Some of it we'll reinvest.
You already saw us invest time and effort in infrastructure. From a financial standpoint, this is not a heavy spend to grow below the GP line.
Okay.
The two questions are tied.
Okay. Like I said, I'm not asking you for a long-term guidance. When we look at the 2Q Adjusted EBITDA guide. It does imply reinvestment back towards a break-even level relative to 1Q results. Given what you just said, how should we think about the near-term context or drivers of margins? What that means, I guess you already talked about margin expansion down the line, but what does that look like in the near term as you go towards that double-digit revenue?
Again, you always ask good questions. Before I give you the specific answer on Q2, let's take a step back. I think in disclosure, it's important to recall that we talk about double-digit growth by the end of the year in revenue, but we talk about some clear things that we're cycling through. Finishing the infrastructure project in Q1 in Japan so that we can turn to growth.
Completing and launching the relaunch of Canvas, setting up the infrastructure for more creative content for rest of world. Seeing the turnaround in Korea already emerge with 13.9% constant currency growth in Korea. Yet we're not saying all of that happens in Q2 because the revenue guide, as you note, is within this range of 332%-342%, or roughly a midpoint of 3.1%. I believe we're managing for the right long-term growth of the company, but long-term is not our Q2 guide.
On the bottom line, let's look at Q1 for a second. In Q1, we had guided to kind of flat revenue. On a constant currency basis, we were actually flat year-on-year revenue, - 1.5% on a reported basis due to FX. We had previously guided Q1 to $0 million-$5 million positive Adjusted EBITDA and delivered $9.5 million. I said on the call, gosh, I wish I had invested some of that over-delivery back into long-term growth, and that I would do it in Q2. Once again, we're guiding to $0 million- $5 million Adjusted EBITDA in Q2, I mean.
I think that reflects a commitment to grow this thing for the long term. That said, it's not negative Adjusted EBITDA.
Yeah.
I do enjoy having posted positive operating cash flow in the last three years. I do think this will grow on its own steam in a financially prudent way, but I don't think the investor will be rewarded by dropping short-term Adjusted EBITDA, even though we will find accretion as we grow outside of Korea.
Okay, that's great. We have about two minutes remaining, but I do want to touch on two exciting initiatives or changes. Let's talk about Disney first. There's two components of that partnership. One is content on your platform, and then the new app or new platform that you're launching with them in 2026. When we look at those two pieces, how does Disney contribute to your overall P&L?
Again, I want to reiterate, I think we're extremely grateful to be able to partner with someone like Disney, and I think it reflects the fact that we are ready to really grow globally, because they would not have picked a partner like us without that belief. There are really, I think, of three components with Disney, let me go through them. One is bringing the vertical scroll format we have innovated and pioneered, the web comic format, for great stories they have on our platform. We've already begun and are well down the path. In fact, as you know, since our last release, having two Star Wars stories in that bucket, along with Wings of Fire and Daredevil and an original Mickey Mouse and F1 collaborations, we will continue to do that. I think that's great.
The second component is we're really excited about doing what we call an original story with Disney. I'm not committing to the story. This will require mutual agreement by both sides. Pick your favorite backstory from your favorite Disney, Pixar, Star Wars, 20th Century universe. Maybe it's someone in the Tony Stark circle that becomes from being a backstory to being a protagonist. Having an original story like that, I think has a significant strategic and financial upside beyond just that first bucket of reformatted titles. The third is having a new consumer-facing platform that has the leverage of all of their content. That will not happen until we launch it within, we said, this calendar year.
Like I said with the long term, I think Disney will be a game changer, but I don't think it is a short-term game changer. I think it's something that's going to accelerate for the long term.
Okay, that's great. We only have 20 seconds, and this question is going to be too big to answer in that 20 seconds, but I want to ask it anyways. AI, what does AI mean for you guys?
We may be the greatest AI story not told. We believe human creators are the best storytellers, but we are using AI for personalization recommendation engines, showing up in real results in Korea to protect creators, to improve their productivity. We'll talk about it more and more, but we are an AI beneficiary, and I think we're set up with our rev share to have a unique ability to partner really quickly with creators to their benefit.
Okay, great. That's it.
All right. Thanks.
Save it.