Webtoon Entertainment Inc.

03/11/2025 | Press release | Distributed by Public on 03/11/2025 14:08

Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis contains forward-looking statements, including, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and resources. Such forward-looking statements should be read in conjunction with our disclosures under "Cautionary Note Regarding Forward-Looking Statements" and under "Item 1A. Risk Factors" of this Annual Report.
This section of this Annual Report generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Annual Report can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form S-1/A (File No. 333-279863) which was declared effective by the SEC on June 26, 2024. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included in this Annual Report on Form 10-K.
Overview
WEBTOON is a global storytelling platform where a vibrant community of creators and users discover, create and share new content. We have pioneered a cultural movement by revolutionizing the storytelling format and democratizing content creation and publication. WEBTOON empowers creators, by enabling them to participate economically in their own creation, and users, by offering an endless library of content.
Contenton our platform tells stories, across formats. On our platform, creators tell long-form stories through serialized narratives in the form of short-form, bite-sized episodes, creating a habitual behavior with an engaged user base. These stories are primarily told in two ways-web-comics, a graphical comic-like medium, and web-novels, which are text-based stories. The web-comic medium tells stories using a continuous vertical-scroll format that is easily read on mobile devices. We are able to extend the reach, impact and monetization of our content by adapting it into other media formats such as film, streaming series, games, merchandise and print books.
Creatorspower our content engine by authoring immersive visual stories, developing imaginative new characters and inspiring fandoms. Our creator base ranges from the individual enthusiast with a love of storytelling to the professional author building a brand and an enterprise on our platform. WEBTOON provides creators with an opportunity to monetize their creativity through various means, including Paid Content, advertising and IP Adaptations.
Userscome to our platform to discover and consume engaging and immersive content. Our creators tell stories that are relatable to global audiences, attracting users across age groups, geographies and genders. Our primary user base is Gen Z and millennials. WEBTOON helps fans discover engaging content across genres, with fresh, weekly releases.
Communityreinforces the benefits to creators and users on our platform. We help users and creators build relationships and engage with one another over content. As users, or "fans," often develop a personal connection to the titles on our platform, they relish the direct engagement with creators through both our comments section at the end of each episode and the "Creator Profile" section, where creators can post messages and users can respond directly. Fans also appreciate the ability to potentially influence how stories unfold and how their favorite characters evolve, as creators may choose to incorporate fans' feedback. This enables a positive feedback loop for content creation and user engagement. This community engagement powers a flywheel of user engagement and creator readership, which in turn drives WEBTOON's success.
Our platform continuously empowers and incentivizes creators to drive creation of unique long-form stories. These stories are enjoyed on our platform by a growing base of loyal fans and importantly, enable us to expand the audience base off-platform over time. This continuous cycle results in successful and durable franchises within our ever-growing content library, empowering us with a multitude of monetization opportunities through IP Adaptations.
Key Business Metrics
We believe our performance is dependent upon many factors, including the key metrics described below that we track and review to measure our performance, identify trends, formulate financial projections, and make strategic decisions.
Our offerings include WEBTOON, LINE MANGA, NAVER SERIES, eBookJapan, Munpia and Wattpad. We manage our business by tracking several operating metrics, including: monthly active users, or MAU; monthly paying users, or MPU; and Paid Content Average Revenue per Paying User, or ARPPU. For a definition of these operating
metrics, please see the "Glossary." As a management team, we believe each of these operating metrics provides useful information to investors and others.
Our year-over-year activity and quarter-over-quarter growth trends may fluctuate subject to various internal and external factors including (i) seasonality of our business where we see increased activity during holiday season, (ii) magnitude of our marketing campaigns, (iii) hiatus/return of creators and key titles on our platforms, (iv) TV shows, films, and/or gaming release based on our content as part of our IP Adaptation business, (v) our strategic decision to direct traffic to our mobile application may lead to fluctuations in trends as web users who view in both mediums may choose to continue to consume on our mobile application only and (vi) external factors impacting the global economy, our industry and our company.
Geographic Tracking
We review each metric by geography where our products are available and accessible. We categorize geographies into Korea, Japan, and Rest of World ("ROW") based on the location of our users:
•Koreaincludes WEBTOON Korea, NAVER SERIES, and Munpia where our content is in Korean and targeted at Korean speaking users.
•Japan includes LINE MANGA and eBookJapan where our content is in Japanese and targeted at Japanese speaking users.
•Rest of Worldincludes WEBTOON in all other languages including English, Spanish, and more, as well as Wattpad, where our content is targeted at global users outside of Korea and Japan.
In particular, as a proxy for tracking our performance in North America, which we consider to be a key market, amongst Rest of World, we track users who consume WEBTOON offered in English in the U.S. and Canada based on such user's Internet Protocol (IP) addresses (collectively "WEBTOON North America"). For clarity, the following cases are not counted as part of WEBTOON North America but counted as part of Rest of World: (i) where users consume non-English (e.g., Spanish) WEBTOON content while they are physically based in North America and (ii) where users consume non-WEBTOON products (e.g., Wattpad) while they are physically based in North America.
Our methodology of geographic tracking may include an immaterial number of users not geographically located within the above segmentation. For instance, where users consume WEBTOON Korea content while they are physically based outside of Korea, the users will be counted as part of Korea. While we believe that these metrics are reasonable estimates of our user base for the applicable period of measurement, and that the methodologies we employ and update from time-to-time to create these metrics are reasonable bases to identify trends in user behavior, the preparation of each of such metrics involves the use of estimates, judgments and assumptions, and our metrics may be materially affected if such estimates, judgments or good faith assumptions prove to be inaccurate. See "Risk Factors-Risks Related to Our Business, Industry and Operations-Our user metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics could adversely affect our business and reputation."
Trends in Monthly Active Users (MAU)
We define MAU as users based on each device logged in and each offering accessed from a single device and may include the same individual user multiple times if the user is logged in from multiple devices or if the user accesses multiple offerings from one device.
We track MAU as an indicator of the scale of our active user base, user engagement and adoption. We also break out MAU by geographic region to help us understand the global engagement.
As of the year ended December 31, 2024, our global MAU was approximately 166 million. The global MAU decreased by approximately 1.5% compared to December 31, 2023, primarily due to decreases in ROW MAU driven by a government ban on Wattpad in one country, and slight decreases in Korea MAU. These decreases were offset by continued growth in Japan. By geographic regions, Korea, Japan, and Rest of World contributed 14.6%, 13.2%, and 72.2% of global MAU, respectively.
•In Korea, our MAU was approximately 24.4 million as of the year ended December 31, 2024, compared to MAU of 24.9 million as of the year ended December 31, 2023. Our user base in Korea is highly engaged, and our cohorts have demonstrated deeper engagement and levels of consumption over time. Our decrease in
MAU for the year ended December 31, 2024, was driven largely by short-term engagement impacts from political turbulence in Korea.
•In Japan, our MAU have reached 21.9 million as of the year ended December 31, 2024, compared to MAU of 21.2 million as of the year ended December 31, 2023, largely attributable to growth of LINE Manga and local Japanese title launches. In addition, we continued to optimize and improve our existing AI-based personalized content recommendation capabilities.
•In Rest of World, our MAU was approximately 120.1 million as of the year ended December 31, 2024, which declined from 122.9 million as of December 31, 2023. The decline was primarily attributable to decline in web users. We do not monetize web users in North America, which is why we are focused on converting users to the app. The MAU for the Rest of World is a relatively larger portion compared to Korea and Japan as it includes Wattpad, which has a large global user base. Roughly two-thirds of the decline was isolated to one country where the government banned a number of global content sites, including Wattpad.
Trends in Monthly Paying Users (MPU)
We define MPU as users who have paid to access Paid Content in the applicable calendar month, averaged over each month in the given period. We define paying ratio as the ratio of MPU divided by MAU for the respective periods.
We view MPU and paying ratio to be indicators of the strength of our monetization.
As of the year ended December 31, 2024, our global MPU reached 7.7 million with a paying ratio of 4.6%, which is a slight increase compared to the paying ratio for the year ended December 31, 2023. By geographic regions, Korea, Japan, and Rest of World contributed 48.6%, 29.0% and 22.4% of global MPU, respectively. Paying ratio varies due to the user's ability and propensity to pay across different regions and different product offerings.
•In Korea, our MPU have decreased to around 3.7 million with a paying ratio of 15.4%, compared to MPU of 4.1 million and a paying ratio of 16.3% as of the year ended December 31, 2023.
•In Japan, our MPU have reached 2.2 million with a paying ratio of 10.2%, compared to MPU of 2.0 million and a paying ratio of 9.2% as of the year ended December 31, 2023.
•In Rest of World, our MPU is 1.7 million with a paying ratio of 1.4%, which has remained similar to the year ended December 31, 2023, reflecting our current strategic plans and marketing discipline to focus on select markets for long-term value creation. Our paying ratio is relatively lower as compared to Korea or Japan due to the inclusion of Wattpad. Wattpad has a different monetization model that primarily focuses on advertising and the business is in its early stage of monetizing its content. We plan to continue to leverage our successful pattern of engagement to drive monetization, especially as we have seen our highly engaged users in North America reading a similar number of episodes to users in other mature markets.
Trends in Paid Content Average Revenue per Paying User (ARPPU)
We define ARPPU as average Paid Content revenue in a given month divided by the number of MPU for such month, averaged over each month in the given period.
We view ARPPU to be an indicator of both the strength of engagement and Paid Content monetization on our platform. Units are in U.S. dollar.
Engagement is a key aspect to drive our monetization. For the year ended December 31, 2024, our ARPPU has increased to $11.7, or 6.2% growth compared to December 31, 2023. The growth in ARPPU was driven primarily by our strategic effort to shift users from web to the app by continuing to improve our recommendation models.
•In Korea, our ARPPU for the year ended December 31, 2024, has decreased to $7.8, or 1.2% decrease compared to the year ended December 31, 2023.
•In Japan, our ARPPU for the year ended December 31, 2024 has decreased to $22.1, or 1.7% decrease compared to the year ended December 31, 2023, but still remained relatively comparable.
•In Rest of World, our ARPPU for the year ended December 31, 2024 has increased to $6.6, or 21.6% growth compared to the year ended December 31, 2023, primarily driven by reader habituation in paying to view content.
Seasonality
Historically, while the magnitude and timing varies across regions, we experienced higher levels of user engagement and monetization in the third quarter of the calendar year primarily as a result of increased use of our platform during the global vacation and holiday schedules of our users. In addition, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing. As we continue to diversify our sources of revenue, and in particular increase revenue from advertising, the seasonal impacts may be more pronounced in the fourth quarter in the future or different altogether.
Components of Results of Operations
Revenue
Our revenue is derived from three distinct revenue streams: Paid Content, Advertising and IP Adaptations.
Our Paid Content revenue represents revenue generated from the sale of content on our platform to users. Advertising revenue represents revenue earned for the display of advertisements on our platform, including in-stream placement within content. Our IP Adaptations revenue comprises of revenue generated from adaptations of certain content on our offerings into other media formats such as films, streaming series, games and merchandise, which may take the form of fixed licensing fees or other arrangements where we participate in the upside of such productions, or sales of merchandise. See Note 2. Revenuein the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.
Cost of Revenue
Cost of revenue consists of Paid Content creator revenue shared with creators, app store fees and other variable costs. Creator revenue share includes commissions payable to creators or publishers based on revenue generated from Paid Content. App store fees include platform fees payable to companies that provide users with the ability to download the mobile application through application stores and make purchases directly through such application (such as Google and Apple) and certain other payment-related costs. These expenses are lower in Korea where more people buy Coins through our website as opposed to purchases made through mobile applications. Other variable costs include, among other things, costs directly associated with our IP Adaptations business, including payroll and related personal expenses, stock-based compensation, amortization and production costs.
Marketing
Marketing expenses consist of expenses incurred for the promotion of our brand, costs associated with user acquisition and costs associated with loyalty marketing campaigns where we give away free Coins. Marketing expenses also include compensation costs related to sales and marketing personnel.
General and Administrative Expenses
General and administrative expenses consist of all our operating costs, excluding cost of revenue and marketing, and include costs related to operating and maintaining our platform, general corporate function costs, stock-based compensation expense (benefit) and depreciation and amortization of non-operating assets. See Note 11. Stock-Based Compensationin the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.
Interest Income
Interest income primarily consists of interest earned on our short-term, highly liquid investments with original maturities of three months or less, which are mainly comprised of bank deposits, and interest income from loan receivables.
Interest Expense
Interest expense primarily consists of interest related to our outstanding debt obligations, including both short-term borrowings and long-term debt. See Note 9. Debtin the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.
Impairment Losses on Goodwill
Impairment losses on goodwill primarily consist of recognized losses resulting from our annual goodwill impairment test. See Note 7. Goodwill, net and Intangible Assets, net, in the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.
Income (Loss) on Equity Method Investment, Net
Income (loss) on equity method investment, net, includes recognized income (loss) associated with our investments accounted for using the equity method. See Note 18. Equity Method Investmentsin the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.
Other Income (Loss), Net
Other income, net, primarily consists of gains or losses on valuation of debt and equity securities, net, income or loss on foreign currency, net, retirement benefit, net, and other non-operating income or loss, net.
Income Tax Expense
Income tax expense primarily includes income taxes in certain federal, state, local, and foreign jurisdictions in which we conduct our business, primarily in the U.S., Korea, Japan and Canada. Foreign jurisdictions have different statutory tax rates from those in the U.S. Additionally, certain of our foreign earnings may also be taxable in the U.S. Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, use of tax credits, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws. See Note 12. Income Taxesin the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.
Results of Operations
Consolidated Statements of Operations and Comprehensive Loss
The following table sets forth our consolidated statement of operations for 2024 and 2023. This data should be read in conjunction with our audited consolidated financial statements. Historical results are not necessarily indicative of the results that may be expected in the future.
Year Ended December 31,
(in thousands of USD) 2024 2023 % Change
Revenue $ 1,348,478 $ 1,282,748 5.1 %
Cost of revenue (1,009,410) (987,258) 2.2 %
Marketing (107,783) (121,086) (11.0) %
General and administrative expenses (331,984) (210,762) 57.5 %
Operating income (loss) (100,699) (36,358) 177.0 %
Interest income 15,820 3,009 425.8 %
Interest expense (45) (79) (43.0) %
Impairment losses on goodwill (69,743) (63,412) 10.0 %
Loss on equity method investments, net (1,123) (12,339) (90.9 %)
Other income (loss), net 6,482 (23,574) (127.5) %
Income (loss) before income tax (149,308) (132,753) 12.5 %
Income tax expense (3,604) (12,006) (70.0 %)
Net income (loss) (152,912) (144,759) 5.6 %
Net income (loss) attributable to non-controlling interests and redeemable non-controlling interests (9,007) (28,304) (68.2 %)
Total comprehensive loss attributable to WEBTOON Entertainment Inc. $ (143,905) $ (116,455) 23.6 %
Comparison of the Years Ended December 31, 2024 and December 31, 2023
Revenue
Year Ended December 31,
(in thousands of USD) 2024 2023 % Change
Revenue $ 1,348,478 $ 1,282,748 5.1 %
Paid Content 1,083,026 1,028,960 5.3 %
Advertising 166,087 145,452 14.2 %
IP Adaptations 99,365 108,336 (8.3 %)
Revenue increased by $65.7 million, or 5.1%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily related to strong growth in Paid Content and Advertising, partially offset by our exposure to weaker foreign currencies. The increases of $20.6 million, or 14.2%, in advertising revenue, was largely driven by double-digit growth in Japan and ROW. Such increases were largely offset by the Company's exposure to weaker foreign currencies including the KRW and JPY.
Cost of Revenue
Year Ended December 31,
(in thousands of USD) 2024 2023 % Change
Cost of revenue $ (1,009,410) $ (987,258) 2.2 %
Our cost of revenue increased by $22.2 million, or 2.2%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. Such increase was primarily due to stock based compensation expense of $12.2 million for the year ended December 31, 2024, compared to $1.2 million for the year ended December 31, 2023, and overall increases in commissions and fees paid to creators, associated with higher revenues.
Marketing
Year Ended December 31,
(in thousands of USD) 2024 2023 % Change
Marketing $ (107,783) $ (121,086) (11.0) %
Marketing expenses decreased by $13.3 million, or 11.0%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The decreases were a result of increased efficiencies with our marketing, as we reported higher revenue on similar levels of marketing spend from last year on a global basis.
General and Administrative Expenses
Year Ended December 31,
(in thousands of USD) 2024 2023 % Change
General and administrative expenses $ (331,984) $ (210,762) 57.5 %
General and administrative expenses increased by $121.2 million, or 57.5%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily driven by stock-based compensation expense of $75.2 million, compared to $6.7 million for the year ended December 31, 2023, a one-time bonus of $30.0 million granted to the CEO for a successful IPO, and increased costs associated with being a public company. The increase in stock-based compensation expense for the year ended December 31, 2024, was largely attributable to the consummation of the IPO, at which performance obligation for vesting had been achieved. (See Note. 11 - Stock-Based Compensation for more information about our stock-based compensation expense)
Interest Income
Year Ended December 31,
(in thousands of USD) 2024 2023 % Change
Interest income $ 15,820 $ 3,009 425.8 %
Interest income increased by $12.8 million, or 425.8%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase was primarily driven by higher balances due to proceeds from the IPO and higher interest rates compared to the prior year.
Interest Expense
Year Ended December 31,
(in thousands of USD) 2024 2023 % Change
Interest expense $ (45) $ (79) (43.0) %
Interest expense decreased by approximately $0.03 million, or 43.0%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to lower balances on our short-term borrowings during the year, and zero balances at December 31, 2024.
Impairment Losses on Goodwill
Year Ended December 31,
(in thousands of USD) 2024 2023 % Change
Impairment losses on goodwill $ (69,743) $ (63,412) 10.0 %
Impairment losses on goodwill increased by $6.3 million, or 10.0%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, which was primarily due to higher impairment losses related to our webnovel businesses. For the years ended December 31, 2024, and December 31, 2023, we elected to bypass a qualitative assessment and performed a quantitative assessment to fulfill our annual goodwill impairment testing requirements under U.S. GAAP. See Note 7. Goodwill, net and Intangible Assets, net and Critical Accounting Policies and Estimates - Goodwill and Intangible Assetsfor further details on our impairment losses on goodwill.
Loss on Equity Method Investment, Net
Year Ended December 31,
(in thousands of USD) 2024 2023 %
Change
Loss on equity method investments, net $ (1,123) $ (12,339) (90.9) %
Loss on equity method investment, net, decreased by $11.2 million, or 90.9%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. This decrease was primarily due to recognized losses of $11.0 million associated with our investments in AtoZ Corporation during the year ended December 31, 2023, which we account for using the equity method. See Note 18.Equity Method Investmentsfor more information.
Other Income (Loss), Net
Year Ended December 31,
(in thousands of USD) 2024 2023 % Change
Other income (loss), net $ 6,482 $ (23,574) (127.5) %
Other income (loss), net, increased by $30.1 million, or 127.5%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. This increase was primarily due to losses during the year ended December 31, 2023, related to valuation of financial assets measured at fair value of approximately $7.8 million, $6.8 million, and $5.3 million
related to NAVER Z Co., Ltd, Contents First, Inc., and Clova Games, Inc., respectively, that did not occur during the year ended December 31, 2024, and positive fluctuations in foreign currency exchange rates of approximately $5.4 million during the year ended December 31, 2024, when compared to the year ended December 31, 2023.
Income Tax Expense
Year Ended December 31,
(in thousands of USD) 2024 2023 % Change
Income tax expense $ (3,604) $ (12,006) (70.0) %
Income tax expense decreased by $8.4 million, or 70.0%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. This decrease was primarily driven by a release of a valuation allowance upon completion of the LDF-eBIJ Merger.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, our management and the Board also consider EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin, revenue on a constant currency basis, and revenue growth on a constant currency basis, ARPPU on a constant currency basis and ARPPU growth on a constant currency basis. We believe that these non-GAAP financial measures provide investors with additional useful information in evaluating our performance. Our non-GAAP financial measures should not be considered in isolation, or as substitutes for, financial information prepared in accordance with GAAP. Non-GAAP measures have limitations as they do not reflect all the amounts associated with our results of operations as determined in accordance with GAAP, and should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin
We define EBITDA as net income(loss) before interest income, interest expense, income tax expense and depreciation and amortization. Starting with the third quarter of 2024, our calculation of EBITDA has been revised to adjust for interest income in addition to interest expense. In prior periods, we only adjusted for interest expense because interest income amounts were insignificant. Prior comparable periods have now been recast to conform to the current presentation. Likewise, EBITDA margin is calculated by adjusting for interest income in addition to interest expense and prior comparable periods have been recast to conform to the current presentation. We define Adjusted EBITDA as EBITDA with further adjustments to eliminate the effects of loss on equity method investments, effect of applying the valuation method of fair value through profit or loss ("FVPL"), impairment of goodwill, non-cash stock-based compensation and certain other non-recurring costs. We believe that EBITDA and Adjusted EBITDA provide useful information to investors regarding our performance, as it removes the impact of certain items that are not representative of our ongoing business, such as certain non-cash charges and variable charges. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures and are not intended to be substitutes for any GAAP financial measures. They should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP, such as consolidated net income (loss) or consolidated net income (loss) margin.
Using EBITDA as a performance measure has material limitations as compared to consolidated net income (loss), or other financial measures as defined under GAAP, as it excludes certain recurring items, which may be meaningful to investors. EBITDA excludes interest expense and interest income; however, as we have borrowed money to finance transactions and operations, or invested available cash to generate interest income, interest expense and interest income are elements of our cost structure and can affect our ability to generate revenue and returns for our stockholders. Further, EBITDA excludes depreciation and amortization; however, as we use capital and intangible assets to generate revenue, depreciation and amortization are necessary elements of our costs and ability to generate revenue. Finally, EBITDA excludes income taxes; however, as we are organized as a corporation, the payment of taxes is a necessary element of our operations. Any measure, including EBITDA, that excludes interest expense, depreciation and amortization and income taxes has material limitations as compared to net income. When using EBITDA as a performance measure, management compensates for these limitations by comparing EBITDA to net loss in each period, to allow for the comparison of the performance of the underlying core operations with the overall performance of the company on a full-cost, after-tax basis.
You are also encouraged to evaluate our calculation of Adjusted EBITDA and Adjusted EBITDA Margin, and the reasons we consider these adjustments appropriate for supplemental analysis. In evaluating these measures, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in our presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA and Adjusted EBITDA Margin should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of these measures in the future, and any such modification may be material. Adjusted EBITDA and Adjusted EBITDA Margin have their limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations include:
•Adjusted EBITDA does not include the interest expense and the cash requirements necessary to service interest or principal payments on our debt;
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for replacement of assets that are being depreciated or amortized;
•Adjusted EBITDA excludes the impact of charges and receipts resulting from matters we do not find indicative of our ongoing operations; and
•Other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently than we do.
The following table presents a reconciliation of net loss to EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for each of the periods presented.
(in thousands of USD, except percentages) Year Ended December 31,
2024 2023
2022
Net Loss $ (152,912) $ (144,759) $ (132,523)
Plus (minus):
Interest income (15,820) (3,009) (1,166)
Interest expense 45 79 844
Income tax expense 3,604 12,006 14,369
Depreciation and amortization 40,074 38,359 34,735
EBITDA
$ (125,009) $ (97,324) $ (83,741)
Impairment losses on goodwill(1)
69,743 63,412 -
Stock-based compensation expense(2)
82,321 3,220 (525)
Loss on fair value instruments, net(3)
(2,263) 22,677 190
Restructuring and IPO-related costs(4)
42,050 4,330 -
Loss on equity method investments, net(5)
1,123 12,339 4,694
Adjusted EBITDA
$ 67,965 $ 8,654 $ (79,382)
Net loss margin (11.3) % (11.3) % (12.3) %
Adjusted EBITDA Margin 5.0 % 0.7 % (7.4) %
______________
(1)Represents impairment losses on goodwill for Wattpad Corp., Wattpad WEBTOON Studios Corp, Munpia Inc. and Jakga Company Inc.
(2)Represents non-cash stock-based compensation expense related to WEBTOON's equity incentive plan and stock-based compensation plans of NAVER Corp., Munpia Inc. and LOCUS Inc.
(3)Represents unrealized net loss of financial assets measured at FVPL, which include the Company's equity investments in entities including NAVER Z Co., Ltd., Contents First Inc. and Clova Games Inc.
(4)Represents non-recurring expenses that we do not consider representative of the operating performance of the business. Other costs are comprised of the following expenses associated with (i) financial advisory fees (ii) consulting fees and (iii) severance fees and (iv) office relocation fee.
(5)Represents our proportionate share of recognized losses associated with our investments accounted for using the equity method.
Use of Constant Currency
We provide revenue, including period-over-period growth rates, adjusted to remove the impact of foreign currency rate fluctuations and the impact of deconsolidated and transferred operations, which we refer to as revenue on a constant currency basis. We calculate revenue on a constant currency basis in a given period by applying the average currency exchange rates in the comparable period of the prior year to the local currency revenue in the current period. We calculate revenue growth (as a percentage) on a constant currency basis by determining the increase in current period revenue over prior period revenue, where current period foreign currency revenue is translated using prior period average currency exchange rates. In addition to adjustments for foreign currency exchange fluctuations, we have also adjusted revenue to exclude the impact of deconsolidation of Jakga and LOCUS and its subsidiaries, and the transfer of SERIES ON, one of our offerings, from NAVER WEBTOON to NAVER to improve comparability between the two periods. We calculate revenue (including growth rates) on a constant currency basis in each of our revenue streams - Paid Content, Advertising and IP Adaptations - using the same method as laid out herein. See Note 17. Disposition and Business Combinationin the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.
We provide ARPPU, including period-over-period growth rates, on a constant currency basis for our Paid Content revenue streams as average Paid Content revenue on a constant currency basis in a given month divided by the number of MPU for such month, averaged over each month in the given period. As discussed above, we calculate revenue on a constant currency basis in a given period by applying the average currency exchange rates in the comparable period of the prior year to the local currency revenue in the current period and excluding deconsolidated and transferred operations. We calculate ARPPU growth rates (as a percentage) on a constant currency basis as the increase in current period ARPPU over prior period ARPPU, with current period foreign currency ARPPU translated using prior period average currency exchange rates and excluding deconsolidated and transferred operations.
We believe providing revenue, revenue growth rates, ARPPU and ARPPU growth rates on a constant currency basis helps our investors better understand our underlying performance because they exclude the effects of foreign currency volatility and impacts of deconsolidated and transferred operations that are not indicative of our actual results of operations. Adjusting revenue or ARPPU to remove the effects of foreign currency rate fluctuations, deconsolidation, and transfer of operations results in non-GAAP measures that management uses to help make informed decisions by removing the volatility caused by foreign currency rate fluctuations and the impact of deconsolidated and transferred operations, allowing us to assess whether the business is fundamentally healthy and growing. Additionally, these metrics support management in efficiently allocating resources and determining priorities by providing a basis for evaluating the competitiveness and growth potential of the business itself. It is for these reasons that management believes these non-GAAP metrics add value, but they have their limitations as analytical tools for not reflecting all the amounts associated with our results of operations as determined in accordance with GAAP, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP.
The following table presents a reconciliation of revenue to revenue on a constant currency basis, and ARPPU to ARPPU on a constant currency basis, respectively, for each of the periods presented.
Year Ended December 31,
(in thousands of USD, except percentages) 2024 2023 Change 2023 2022 Change
Total Revenue $ 1,348,478 $ 1,282,748 5.1% $ 1,282,748 $ 1,079,388 18.8%
Effect of deconsolidated and transferred operations (147) (12,406) (98.8%) (10,930) (24,794) (55.9%)
Effects of foreign currency rate fluctuations 86,861 - N/A 34,065 - N/A
Revenue on a Constant Currency Basis $ 1,435,192 $ 1,270,342 13.0% 1,305,883 1,054,594 23.8%
Paid Content Revenue 1,083,026 1,028,960 5.3% 1,028,959 851,871 20.8%
Effect of deconsolidated and transferred operations (122) (6,042) (98.0%) (4,650) (9,283) (49.9%)
Effects of foreign currency rate fluctuations 69,237 - N/A 30,198 - N/A
Paid Content Revenue on a Constant Currency Basis $ 1,152,141 $ 1,022,918 12.6% 1,054,507 842,588 25.2%
Advertising Revenue 166,087 145,452 14.2% 145,452 145,056 0.3%
Effects of foreign currency rate fluctuations 8,129 - N/A 2,824 - N/A
Advertising Revenue on a Constant Currency Basis $ 174,216 $ 145,452 19.8% 148,276 145,056 2.2%
IP Adaptations Revenue 99,365 108,336 (8.3%) 108,336 82,461 31.4%
Effect of deconsolidated and transferred operations (25) (6,364) (99.6%) (6,280) (15,511) (59.5%)
Effects of foreign currency rate fluctuations 9,495 - N/A 1,043 - N/A
IP Adaptations Revenue on a Constant Currency Basis $ 108,835 $ 101,972 6.7% $ 103,099 $ 66,950 54.0%
Paid Content Average Revenue Per Paying User ("ARPPU")
Korea Paid Content Revenue $ 352,521 $ 386,193 (8.7%) $ 386,193 $ 445,004 (13.2%)
Korea ARPPU 7.84 7.93 (1.1%) 7.93 8.60 (7.8%)
Effect of deconsolidated and transferred operations - (0.12) (100.0%) (0.10) (0.18) (44.4%)
Effects of foreign currency rate fluctuations 0.45 - N/A 0.13 - N/A
Korea ARPPU on a Constant Currency Basis $ 8.29 $ 7.81 6.1% $ 7.96 $ 8.42 (5.5%)
Japan Paid Content Revenue 594,302 527,489 12.7% 527,489 328,979 60.3%
Japan ARPPU 22.12 22.50 (1.7%) 22.50 14.83 51.7%
Effects of foreign currency rate fluctuations 1.80 - N/A 1.03 - N/A
Japan ARPPU on a Constant Currency Basis $ 23.92 $ 22.50 6.3% $ 23.53 $ 14.83 58.7%
Rest of World Paid Content Revenue 136,203 115,277 18.2% 115,277 77,888 48.0%
Rest of World ARPPU 6.57 5.40 21.7% 5.40 3.19 69.3%
Effect of deconsolidated and transferred operations - - N/A - - N/A
Effects of foreign currency rate fluctuations - - N/A - - N/A
Rest of World ARPPU on a Constant Currency Basis $ 6.57 $ 5.40 21.7% $ 5.40 $ 3.19 69.3%
Liquidity and Capital Resources
On June 28, 2024, we completed our initial public offering ("IPO") in which we issued and sold 15,000,000 shares of common stock at a public offering price of $21.00 per share. We received net proceeds of approximately $281.7 million from the IPO, after deducting underwriting discounts and commissions and offering expenses payable by us.
Also, immediately subsequent to the closing of the IPO, we issued and sold 2,380,952 shares of common stock to NAVER U.Hub Inc., a wholly-owned subsidiary of NAVER, in a private placement at $21.00 per share and received $50 million in proceeds.
On July 26, 2024, the underwriters partially exercised the over-allotment option to purchase 1,371,549 shares of common stock at $21.00 per share, which was closed on July 30, 2024. We received net proceeds of approximately $26.8 million therefrom, after deducting underwriting discounts and commissions and offering expenses payable by us.
Historically, we have relied primarily upon cash generated from operations and cash provided by NAVER through capital contributions to finance our operations, repay or repurchase indebtedness, finance acquisitions and fund our capital expenditures. NAVER does not have any contractual obligation to provide additional capital to us and therefore there can be no assurance that NAVER will continue to provide additional capital in the form of debt or equity investment in the future to enable us to operate our business. As of December 31, 2024, we had $572.4 million of cash and cash equivalents, which were primarily invested in short-term, highly liquid investments with original maturities of three months or less from the date of purchase and are mainly comprised of bank deposits. We believe that our existing cash and cash equivalent balances will be sufficient to support our working capital requirements for at least the next 12 months based on our current operating plans. However, our future capital requirements will depend on many factors, including our growth rate, sales and marketing activities and other factors affecting our business, including those described in the section entitled "Risk Factors" in this Annual Report. Our expected primary uses of our capital on short-and long-term bases are for repayment of debt, interest payments, working capital, capital expenditures, geographic expansion and other general corporate purposes.
We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products and technologies, including intellectual property rights, which may require us to seek additional financing. To the extent additional funds are necessary to meet our liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of indebtedness, the issuance of additional equity or a combination of these potential sources of funds. Such financing, may however, not be available to us on favorable terms, or at all. In particular, high inflation and interest rates have resulted, and may continue to result, in significant disruption of global financial markets, reducing our ability to access capital. If we are unable to raise additional funds on commercially reasonable terms or at all, our business, financial condition and results of operations could be adversely affected. See "Risk Factors-Risks Related to Our Business, Industry and Operations-We may require additional capital to support our business in the future, and this capital might not be available on reasonable terms, if at all."
Consolidated Statements of Cash Flows
The following table summarizes our cash flows for the period presented:
Year Ended
December 31,
(in thousands of USD) 2024 2023
Net cash provided by (used in) operating activities $ 17,883 $ 14,804
Net cash used in investing activities (17,276) (51,982)
Net cash provided by (used in) financing activities 353,867 (6,499)
Effect of exchange rate changes on cash and cash equivalents (13,817) (4,287)
Net increase (decrease) in cash and cash equivalents $ 340,657 $ (47,964)
Operating Activities
For the year ended December 31, 2024, net cash provided by operating activities was $17.9 million, which primarily consisted of a net loss of $152.9 million, adjusted for certain non-cash items of $185.6 million. The non-cash items primarily consisted of stock-based compensation of $87.4 million, impairment losses of $69.7 million, and depreciation and amortization of approximately $40.1 million, which was offset by a decrease of $24.5 million in deferred tax expenses. The net cash outflow from changes in our operating assets and liabilities was primarily due to unfavorable foreign currency translation adjustments.
Investing Activities
For the year ended December 31, 2024, net cash used in investing activities was $17.3 million, primarily due to payments made for short-term investments of $77.4 million, and purchases of intangible assets of $10.7 million, which was offset by proceeds received from maturities of short-term investments of approximately $68.0 million.
Financing Activities
For the year ended December 31, 2024, net cash provided by financing activities was $353.9 million, consisting primarily of $293.0 million in proceeds from the IPO, net of underwriting discounts and commissions, and $50.0 million in proceeds from issuance of common stock related to private placement, and $26.8 million in proceeds, net of underwriting discounts and commissions, from the exercise of the over-allotment option by the underwriters in connection with the IPO, which was offset by payments of IPO costs of $11.2 million
Critical Accounting Policies and Estimates
We believe that the following accounting policies and estimates involve a high degree of judgment and complexity. Accordingly, these are the policies and estimates we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of our operations. See Note 1. Description of Business and Summary of Significant Accounting Policiesto our audited consolidated financial statements included elsewhere in this Annual Report for a description of our other significant accounting policies. The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those consolidated financial statements and the accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.
Revenue Recognition
We generate revenue primarily by Paid Content, advertising and IP Adaptations. We recognize revenue when services are transferred to customers at the transaction price.
Paid Content revenue
We recognize revenue of Paid Content when we provide users with access to content on our platform in exchange for a purchase fee. On most of our platforms, users purchase access to content by first purchasing Coins and then redeeming such Coins for access to particular content. We recognize Paid Content revenue over the estimated service period upon redemption of Coins, which we determine based on the weighted average number of days between the first day the user is provided access to the content and the last day the user views the content. We believe this provides a reasonable depiction of the transfer of services. We recognize most of our Paid Content revenue on a gross basis, which means before deducting creator revenue share (commissions payable to the creator). In certain cases where we have determined that we act as an agent in such transfer of services, we recognize revenue net of the creator revenue share or other amounts remitted to the creator or publisher.
Advertising revenue
Advertising revenue is recognized at the point in time the advertisement is displayed or based on clicks, impressions or end-user activity. When the customer is an advertising agency, advertising revenue is comprised of the commission the Company earns for lending advertisement space to the advertising agency.
IP Adaptations revenue
We recognize revenue of IP Adaptations based on the terms of the contractual arrangement with our creators. In an arrangement where a creator has authority to make key creative decisions on the output, we recognize revenue over time on a percentage-of-completion basis. If we control the key creative decisions, we recognize revenue as fixed payments for the content upon delivery to and acceptance by the creator or as sales-based royalties when the sell-through sales of the content occur. Similarly, we serve as a principal and recognize revenue on a gross basis when we directly sell licensed merchandise to customers through digital storefronts while controlling the revenue stream, from inventory to distribution. When we serve as an agent through brokering licensing arrangements between creators or publishers and third-party platforms or through licensing IP to third parties that operate all aspects of the revenue stream, we recognize revenue on a net commission basis when we broker such arrangements or as net of the amounts remitted to the third-party merchant when control transfers to the customer, generally at the time of product shipment from its facilities.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Our deferred tax assets are recorded net of valuation allowances when, based on the weight of available evidence, it is more likely than not that all or some portion of the recorded deferred tax assets will not be realized in future periods.
Business Combinations
From time to time, we may enter into business combinations. In accordance with ASC 805, Business Combinations, we generally recognize the identifiable assets acquired and the liabilities assumed at their fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies.
We describe our accounting policy for business combinations in Note 1. Description of Business and Summary of Significant Accounting Policiesin the accompanying notes to our consolidated financial statements.
Goodwill and Intangible Assets
In addition to intangible assets acquired individually, we have identified intangible assets and generated significant goodwill through our acquisitions. Brand, software, trademarks, copyrights and patents are amortized to cost of revenue and general and administrative expenses to operating expense on a straight-line basis over their estimated useful lives. Intellectual property rights with definite lives are amortized to operating expense over their estimated economic useful lives or the period over which we have exclusive and unrestricted rights to the content under the contract.
We evaluate goodwill and indefinite-lived intangible assets such as membership and publishing rights for impairment annually as of October 1, or earlier if an event or other circumstance indicates that it may not recover the carrying value of the asset. If we believe that, as a result of its qualitative assessment, it is more likely than not that the fair value of a reporting unit or other indefinite-lived intangible asset is greater than its carrying amount, a quantitative impairment test is not required. Reporting units are businesses for which individual financial information is available. If a qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit goodwill or other indefinite-lived intangible asset exceeds its fair value, a quantitative impairment test is performed. The Company may elect to bypass this qualitative assessment for annual impairment evaluations as of October 1 for some or all of its reporting units and perform a quantitative test. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment charge is recorded for the amount by which the carrying amount exceeds the fair value, not to exceed the amount of goodwill recorded for that reporting unit. Application of the goodwill impairment test requires judgment based on market and operational conditions at the time of the evaluation, including management's best estimates of the reporting unit's future business activity and the related estimates and assumptions of future cash flows from the assets that include the associated goodwill.
As discussed above, there is an inherent degree of uncertainty in preparing any forecast of future results, and the key inputs require significant judgments to be made. Any significant changes in these underlying assumptions may significantly affect our impairment conclusions and net book value of our corresponding assets in our consolidated financial statements. During the fourth quarter of December 31, 2024, there was a material change in the cash flow assumptions that led to the impairment of goodwill arising from a delay in realizing synergies and returns from investments in content creation and IP Adaptations, the postponement of releases for major works, the ongoing Wattpad ban in a certain country, and the delay in web-novel video production at the Munpia, Wattpad, and Wattpad WEBTOON Studios Corp. ("Wattpad WEBTOON Studios") reporting units, respectively, as of October 1, 2024.
As of the October 1, 2024, annual impairment testing date, four reporting units had goodwill - Munpia, Wattpad WEBTOON Studios, Wattpad, and LDF (in each case, including its subsidiaries, if any). On October 1, 2024, we performed a quantitative annual impairment test for all reporting units, which resulted in $46.7 million, $20.3 million and $2.7 million impairment of goodwill at Wattpad, Munpia, and Wattpad WEBTOON Studios reporting units, respectively. The remaining goodwill at the Wattpad, Munpia, LDF and Wattpad WEBTOON Studios reporting units following impairment were $437.2 million, $154.2 million, $71 million and $2.9 million, respectively. No goodwill impairment was recorded for the LDF reporting unit given as its fair value substantially exceeded its respective carrying value.
The fair value of each reporting unit was estimated using a discounted cash flow method with significant inputs such as projected future cash flows, discount rate and terminal growth rate. Our cash flow assumptions are based on detailed, multi-year forecasts performed by each of our operating reporting units that reflect our business plans and market outlook information. The discount rates are determined based on each reporting unit's cost of capital proportionately weighted between each type of capital (i.e., debt and equity). Terminal growth rates are based on historical industry growth patterns, the reporting unit's sustainable growth rate, and macroeconomic factors such as GDP growth and inflation rates. The carrying values were based on each respective reporting unit's net asset balance as of October 1, 2024, and included directly attributable assets and liabilities, including goodwill.
Recent Accounting Pronouncements
See Note 1. Description of Business and Summary of Significant Accounting Policiesin the accompanying notes to our audited consolidated financial statements included elsewhere in this Annual Report for more information.