10-Q: WEBTOON Q3 Loss Widens, IP Adaptations Drive Revenue Growth

WEBTOON Entertainment Inc. reported an increased net loss for Q3 2025, despite strong growth in IP Adaptations revenue, alongside a decline in global monthly active users.

Summary

• Net loss attributable to WEBTOON Entertainment Inc. for the three months ended September 30, 2025, was $11.05 million, a significant increase from a net income of $19.99 million in the comparable prior year period.
• Total revenue for the three months ended September 30, 2025, increased by 8.7% to $378.04 million, primarily driven by a 168.7% surge in IP Adaptations revenue to $51.86 million.
• Global Monthly Active Users (MAU) decreased by 8.5% to approximately 155.4 million as of September 30, 2025, compared to 169.9 million in the prior year.
• Global Monthly Paying Users (MPU) were 7.7 million, with the paying ratio increasing to 5.0% as of September 30, 2025, up from 4.6% in the prior year.
• Average Revenue per Paying User (ARPPU) increased by 2.8% to $12.4 for the three months ended September 30, 2025.
• Operating loss for the three months ended September 30, 2025, widened to $14.88 million from $8.09 million in the comparable prior year period.
• For the nine months ended September 30, 2025, net loss improved by 26.7% to $36.90 million, and operating loss improved by 31.1% to $50.28 million.
• Material weaknesses in internal control over financial reporting were identified, specifically related to an insufficient complement of accounting resources and ineffective period-end financial reporting controls.
• The company is involved in two securities lawsuits filed in September and November 2024, alleging false and misleading statements in the IPO Registration Statement and breach of fiduciary duties.

Sentiment

Score: 4

Explanation: The company shows strong growth in IP Adaptations and improved monetization per paying user (ARPPU), alongside a reduction in nine-month net and operating losses. However, a significant widening of the net loss in the most recent quarter, a notable decline in global MAU, and identified material weaknesses in internal controls present considerable concerns and uncertainty.

Positives

• IP Adaptations revenue surged by 168.7% to $51.86 million for the three months ended September 30, 2025, and by 70.2% to $105.58 million for the nine months ended September 30, 2025.
• Global paying ratio increased to 5.0% as of September 30, 2025, up from 4.6% in the prior year, indicating stronger monetization of the user base.
• Average Revenue per Paying User (ARPPU) grew by 2.8% to $12.4 for the three months ended September 30, 2025, reflecting increased engagement and monetization per paying user.
• General and administrative expenses decreased by 6.4% to $62.49 million for Q3 2025 and by 23.6% to $194.16 million for the nine months, partly due to lower stock compensation and the absence of a one-time CEO bonus from the prior year.
• Net loss for the nine months ended September 30, 2025, improved by 26.7% to $36.90 million compared to a $50.35 million loss in the prior year.
• Operating loss for the nine months ended September 30, 2025, improved by 31.1% to $50.28 million compared to a $72.99 million loss in the prior year.
• Cash and cash equivalents stood at $584.58 million as of September 30, 2025, with management believing it sufficient to support working capital requirements for at least the next 12 months.

Negatives

• Net loss for the three months ended September 30, 2025, was $11.05 million, a significant decline from a net income of $19.99 million in the comparable prior year period.
• Global Monthly Active Users (MAU) decreased by 8.5% to 155.4 million as of September 30, 2025, primarily due to declines in Korea and Rest of World regions, including government bans on Wattpad and a security upgrade affecting search engine indexing.
• Advertising revenue decreased by 9.3% to $39.37 million for the three months ended September 30, 2025, due to declines in ad volume from an e-commerce advertising partner.
• Cost of revenue increased by 15.1% to $295.27 million for Q3 2025, outpacing overall revenue growth, attributed to higher attribution of free coins and investments in labor.
• Operating loss for the three months ended September 30, 2025, widened by 84.0% to $14.88 million.
• Interest income decreased by 28.8% to $4.64 million for Q3 2025 due to lower interest rates.
• Other income (loss), net, decreased by $13.7 million for Q3 2025, driven by losses on foreign currency exchange rates.

Risks

• A securities class action lawsuit was filed on September 5, 2024, alleging that the IPO Registration Statement was materially false and misleading, in violation of Sections 11 and 15 of the Securities Act of 1933.
• A shareholder derivative lawsuit was filed on November 15, 2024, against the company's directors, making similar allegations as the securities class action, including violations of Section 14(a) of the Exchange Act, breach of fiduciary duties, and unjust enrichment.
• The company cannot predict the ultimate outcome or estimate the range of possible losses for the ongoing legal proceedings.
• Material weaknesses in internal control over financial reporting were identified, specifically lacking a sufficient complement of accounting resources and effective period-end financial reporting controls.
• There is a risk that remediation efforts for internal control weaknesses may not be sufficient, timely, or that additional material weaknesses could be identified in the future.
• The company relies on NAVER for capital, with no contractual obligation for future funding, which could impact liquidity if additional funds are needed.
• Government bans on Wattpad in certain countries and a security upgrade affecting search engine indexing contributed to MAU decline in the Rest of World, highlighting platform accessibility and technical risks.
• Foreign currency fluctuations can significantly impact financial results, as evidenced by losses on foreign currency exchange rates.

Future Outlook

Management believes existing cash and cash equivalent balances will be sufficient to support working capital requirements for at least the next 12 months. Future capital requirements will depend on growth rate, sales and marketing activities, and other business factors. The company may, in the future, enter into arrangements to acquire or invest in complementary businesses, products, and technologies, including intellectual property rights, which may require it to seek additional financing. Such financing may not be available on favorable terms, or at all, especially given high inflation and interest rates.

Management Comments

• The decrease in Rest of World MAU was primarily attributable to government bans on Wattpad in certain countries, as well as the impact of a Wattpad security upgrade which unintentionally affected search engine indexing, causing a dip in search traffic. We fully resolved the search engine indexing issue during the quarter and saw sequential stability in Wattpad MAU in the second half of the quarter as a result.
• The growth in ARPPU was driven primarily by our strategic effort to shift users from web to the app, as app users are more engaged and present better monetization opportunities.
• We are continuing to remain focused on remediation of the remaining material weaknesses outlined above, and our ongoing remediation efforts include: The continued onboarding of U.S. GAAP and SEC reporting specialists to enhance the financial reporting function and establish a robust financial and system control framework; and The continued strengthening of controls around our financial accounting closing, reporting and disclosure processes.

Industry Context

WEBTOON operates in the global digital storytelling market, pioneering web-comics and web-novels. The platform targets Gen Z and millennials, leveraging a community-driven model for content creation and consumption. The significant growth in IP Adaptations revenue reflects a broader industry trend of monetizing digital content across various media formats like film, streaming series, games, and merchandise, indicating the increasing value of original digital intellectual property.

Corporate Governance

Legal Proceedings

• A putative class action lawsuit was filed on September 5, 2024, against the Company, its directors, and the underwriters of the IPO, alleging that the IPO Registration Statement was materially false and misleading, in violation of Sections 11 and 15 of the Securities Act of 1933.
• A shareholder derivative lawsuit was filed on November 15, 2024, against the Company's directors, naming the Company as a nominal defendant, with allegations similar to the securities class action, including claims for violations of Section 14(a) of the Exchange Act, breach of fiduciary duties, and unjust enrichment.

Related Party Transactions

• Provided advertising services to NAVER group companies and LY Corporation, resulting in receivables of $55.05 million as of September 30, 2025.
• Received brand-usage and outsourcing services from NAVER and LY, resulting in accounts payable of $18.99 million and accrued expenses of $6.62 million as of September 30, 2025.
• Rented facilities from NAVER, incurring operating lease expenses of $1.3 million for the three months ended September 30, 2025, and $2.9 million for the nine months ended September 30, 2025, with related lease obligations of $12.1 million as of September 30, 2025.
• Subleased part of its office space to other related parties, generating $0.1 million in other income for the three months ended September 30, 2025, and $0.1 million for the nine months ended September 30, 2025.

Stakeholder Impact

• Shareholders face potential negative impacts from the widening Q3 net loss, declining global MAU, and the ongoing securities litigation. The identified material weaknesses in internal controls could also erode investor confidence.
• Creators benefit from continued investment in labor and commissions, along with the strong growth in IP Adaptations, suggesting ongoing opportunities and support for professional creators.
• Users are impacted by the decline in global MAU, particularly in Korea and Rest of World, which could affect content availability or platform experience, although the Wattpad search engine indexing issue has been resolved.
• Employees are affected by stock-based compensation plans and defined severance benefits, which are part of their remuneration.
• Regulatory authorities will likely scrutinize the company due to the identified material weaknesses in internal controls and the ongoing legal proceedings.

Next Steps

• Continue onboarding U.S. GAAP and SEC reporting specialists to enhance the financial reporting function.
• Establish a robust financial and system control framework.
• Strengthen controls around financial accounting closing, reporting, and disclosure processes to remediate identified material weaknesses.
• Defend vigorously against the ongoing securities class action and shareholder derivative lawsuits.
• Evaluate the full impact of the One Big Beautiful Bill Act (OBBBA) tax reform legislation.

Key Dates

Recommendation

While WEBTOON demonstrates strong growth in its IP Adaptations segment and improved monetization per paying user, the significant widening of its net loss for the quarter, coupled with a notable decline in global monthly active users, presents a mixed financial picture. The identified material weaknesses in internal controls and ongoing securities litigation introduce additional uncertainty and risk. Given these contrasting factors, a 'hold' recommendation is appropriate, suggesting investors monitor the company's progress in addressing operational challenges and legal matters before making further investment decisions.

Keywords

WEBTOON, WBTN, Q3 2025, SEC 10-Q, web-comics, web-novels, IP adaptations, digital content, MAU, MPU, ARPPU, financial results, securities litigation, internal controls, corporate governance, Naver