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Since WEBTOON Entertainment’s (NASDAQ:WBTN) IPO on June 27 this year, the stock has fallen nearly 50%. I have reason to believe WEBTOON presents a unique investment opportunity at today’s prices with significant growth potential that the market has yet to recognize.
While the market has priced in that Korea has become a mature market, Japan will follow suit in the near future, and that Advertising and RoW growth will be steady but modest, my view is more optimistic. In this article, I dive deep into WBTN’s business, outline why I believe both Korea and Japan have room for outperformance, why WEBTOON’s advertising business could exceed expectations through higher CPM ad formats, why the overlooked IP Adaptions business could become a major revenue driver, and argue that success in the US will likely come sooner and stronger than anticipated.
WEBTOON’s business model is attractive to me due to its unique position in digital storytelling, a large and highly engaged user base, predictable and increasingly diversified revenue streams, global reach with access to an over $1 trillion TAM, and near-monopoly status giving it pricing power in its industry. All factors considered, I initiate coverage on WBTN with a $16 price tag and a buy rating for investors with high-risk tolerance.
Everything you need to know about WEBTOON’s business
Company data
WEBTOON is a global platform where anyone can create and share their stories. It’s packed with free, diverse content, such as web-comics Korea and web-novels. Web-comics are image-based and typically release weekly episodes, while web-novels are text-based with 3-5 episodes per week.
With users from all over – 15% in, 12% in Japan, and 12% in North America – WEBTOON is especially popular with Gen-Z, though older audiences also tune in. On average, the users spend 24-37min daily on web-comics and ~55min on web-novels.
WEBTOON’s success comes from a strong community of creators and readers. Creators post original stories, drawing in readers, which in turn attracts even more creators looking to reach a big audience and earn money. This cycle is what makes them a platform with scalability.
WBTN's Fly Wheel (WBTN Final Prospectus Filed on June 26, 2024)
Creators
WBTN Creator Funnel (WBTN Final Prospectus Filed on June 26, 2024)
WBTN boasts 345k web-comic creators and 24M web-novel creators worldwide. Creators are drawn to WEBTOON because it offers a chance to be discovered, an efficient way to create growth opportunities through community support, and many ways to make money.
A big part of WBTN’s success is its creator incubation system. It attracts amateur creators—whether they’re hobbyists, readers who turn into creators, or those from other mediums. Promising creators leads to professional agreements, giving them access to tools, data, and editorial support. Amateurs can start by uploading their work on WBTN’s amateur platform with the goal of becoming professionals. Then things like contests provide a fast track to success.
There are 24M amateur creators on the platform and ~13k of them are professional. On average, professional creators earn ~$48k per year, but top creators can make over $100k, with some even hitting millions.
To go pro, creators sign an agreement granting WBTN rights to distribute and manage their work globally, including access to monetization tools like Fast Pass and ad revenue. Revenue shares vary by region and other things like distribution method. Ultimately, WBTN’s goal is to develop major franchise stars like Taejun Park, Seok Jo, and Rachel Smythe, whose series have billions of page views.
WBTN’s 4 buckets for creator growth
- Expand audience and fandoms – WBTN helps creators with production support, promotions, branding, and social marketing.
- Increase creator earnings – by expanding is audience and offering more ways to monetize, WBTN helps creators earn more.
- Expand technology support – WBTN uses in-house tech and AI to help creators with innovative data.
- Drive more international reach – WBTN expands by sourcing talent though its unique experiential and job opportunities.
WBTN Final Prospectus Filed on June 26, 2024
Content
WBTN hosts 450k web-comics and 55M web-novels in 30+ genres and 10 languages, with 134k+ episodes uploaded daily. Genres of all type, ranging from fantasy and thriller to comedy, drama, and romance. Some series have been running for over 16 years, proving WBTN’s platform longevity.
Thanks to its big library, WBTN avoids content concentration – top 10 titles account for only ~5% of Paid Content revenue, top 50 for ~14%, and top 100 for ~20%. The platform’s web-comic and web-novel formats are popular with Gen Z and Millennials due to their mobile-friendly, binge-worthy, serialized nature.
WBTN also extends its content through IP adaptions into print, games, TV, merchandise, and more. Some adaptations have even become successful TV shows and movies. While WBTN originals are central, the platform also collaborates with big brands like DC, Ubisoft, and BTS’s HYBE to diversify its content.
Users
WBTN User Funnel (WBTN Final Prospectus Filed on June 26, 2024)
WBTN has ~170M MAUs (monthly active users), mainly Gen-Z and Millennials. Users are incredibly loyal, with 9 out of 10 sticking with WBTN for over a year, and 77% believing that WBTN offers unique content they can’t find elsewhere.
A typical WBTN user experience goes like this: they discover a story, dive into more content, watch ads or pay to unlock episodes, start engaging with the community, and eventually watch IP adaptations. Users often find WBTN through word of mouth, direct visits driven by popular stories, or by watching adaptations that lead them back to the original content.
The fact that WBTN is global leads to more opportunities for creators to monetize and gain popularity. The diverse library caters to all types of users, broadens its audience, and not only enhances engagement, but also monetization.
WBTN Final Prospectus Filed on June 26, 2024
WBTN’s user growth pillars
- Tailor content growth to different regions, which helps develop local creator bases while also supporting cross-border content.
- Diversify user acquisition through word-of-mouth, brand marketing, IP adaptations, and collaborations with other platforms.
- Encourage engagement through more interaction, improving recommendations, and launching new gamified features.
- Empowering the community with stronger creator-to-user and user-to-user connections with interactive features such as comments and creator profiles.
Technology
WBTN’s platform connects 169M MAUs with 55M+ pieces of content from 24M creators, allowing it to scale globally. The platform uses AI and analytics to provide its personalized content (works the same way as the “For You” page on TikTok), which increases engagement and optimizes monetization. Revenue is driven by targeting ads and identifying IP potential for adaptations.
How does WEBTOON work?
Users can access WBTN though its website or mobile app, but the mobile app offers a better, more user-friendly experience. Transactions on WBTN involve purchasing or earning Coins, which can be used to unlock episodes through Fast Pass or Daily Pass. Fast Pass allows access to the latest episodes for $0.15 to $0.75 per episode, while Daily pass lets users read more than one episode per day at $0.3 to $0.4 per episode.
TAM
WBTN Final Prospectus Filed on June 26, 2024
WBTN estimates its TAM at $130bn for paid content, $680bn for advertising, and $900bn for IP adaptations. Currently, market penetration is low – less than 1% for paid content and even lower for advertising and IP adaptations. While these estimates might be optimistic, there’s still a ton of room for growth across all three revenue streams, even with 50% more conservative projections.
Who competes with WBTN?
WBTN leads the global web-comic market, but it faces competition from platforms like KAKAO WEBTOON, Lezhin, and Manga Plus in Korea and Japan, and Tapas and Manta elsewhere. KAKAO, in particular, is a major competitor as it owns several competing platforms. However, WEBTOON still has a huge edge, with 5x more weekly active users and 3x more downloads than its closest competitor as of June.
SensorTower
In the web-novel space, competitors include kakaoPage and RIDI in Korea, and Goodnovel and Dreame outside Korea.
SensorTower SensorTower
Beyond direct competitors, WBTN also competes with other forms of entertainment like paper comics, gaming, and social media platforms. Services offering quick, mobile-friendly content, such as TikTok, Instagram Reels, and YouTube Shorts, are especially noteworthy rivals for user attention.
Investment thesis
Unique storytelling platform
WEBTOON revolutionized digital storytelling by giving anyone the opportunity to share bite-sized, serialized web-comics and web-novels, updated weekly. The platform attracts creators due to its global reach, audience engagement, and strong monetization options. What sets WBTN apart to me is its incubation system, because it turns hobbyists and amateur creators into professional storytellers using data-driven insights. With 24M amateur creators and 13k professionals, WBTN’s ecosystem is huge. On average, professional creators earn ~$50k annually, with the top pulling in over $100k, and over 100 creators making millions annually.
Large global user base with strong engagement
WBTN boasts 169M MAUs, mainly Gen Z and Millennials. They have little competition with 25M MAUs in Korea at 50% penetration, 21M in Japan at 15%, and 123M in other regions at 5%. User engagement is radically high – people spend 24-37min daily on web-comics and 55min on web-novels. I find it particularly telling that 9 out of 10 users have stuck with WBTN for over a year, with 77% agreeing that the content is unmatched to anything else. WBTN’s unique appeal continues to attract users and creators worldwide, and I believe this will continue to ensure its strong presence in the digital content space.
Diversified revenue streams with growing contributions from advertising and IP adaptations
WBTN’s revenue primarily comes from Paid Content, Advertising, and IP Adaptations. Currently, Paid Content leads with 80%, making up 80% of revenue, then Advertising at 11%, and IP Adaptations at 8%, but Advertising is expected to grow significantly faster over time, with its mix reaching 21% by 2026. The street is looking at an overall revenue growth of 18% CAGR from 2023 to 2026, with Advertising at 43%, IP Adaptations at 14%, and Paid Content at 13%. Advertising and IP Adaptations aren’t just growing – they also synergize with Paid Content as pre-roll ads, which allow users to unlock paid content by watching ads, drive up engagement and payer conversion while IP Adaptations, shown outside of WBTN’s platform, drive up WBTN’s awareness and attract new users to the platform. Geographically, it’s expected that the fastest revenue growth comes from regions outside the US and Korea, particularly in Japan and emerging markets. These regions are KEY for WBTN’s future success.
I believe Japan could be a better market than Korea for WBTN since it is bigger than Korea and the graphical and animated storytelling formats are mainstream, making Japan a strong market across Paid Content, Advertising, and IP Adaptations. WBTN’s stock will benefit significantly if Japan outperforms.
Global and business model diversification drives growth and margin leverage
WBTN became profitable in 2023, and the street projects it will continue to grow, with EBITDA margins reaching 13% by 2026. The company’s long-term goal is a 15-20% adj. EBITDA margin, which I believe is highly feasible with higher advertising revenue and international expansion that is to come in the next couple of years.
While Paid Content will remain significant, its share of total revenue will drop from 80% to ~70% as Advertising grows. Gross margin improvements, primarily from scaling and efficient spending, are expected to push margins up from 23% in 2023 to 35-40% in the long term. I believe these improvements being fueled by expanding into new regions with lower content costs and a shift to higher-margin Advertising revenue, which could eventually make up 80% of the mix. With this strategy, I truly believe WBTN is on a solid path to sustained profitability.
Key potential catalysts
Japan and Korea Outperformance
As mentioned earlier, Japan outperformance and Korea growth will be the biggest talking point in the coming year. Korea is the most mature market for WBTN, with 50% MAU penetration. Now, if WBTN was able to achieve that penetration in Korea (much smaller than Japan population), I believe it will also be able to do it in Japan since to the graphical and animated storytelling formats are Japan’s bread and butter. At the same time, it will be crucial to see Korea continue to grow, as it’s a big concern that Korea has become too mature of a market and growth has stalled. However, I am not too concerned about growth in Korea due to the pricing power WBTN has in Korea, I don’t believe the company will let Korea growth stall.
Advertising upside
I believe that ARPMAU (avg revenue per MAU) will rise more than expected because WBTN has the power and monetization to introduce higher CPM ad formats. Additionally, WBTN doesn’t have a direct sales team. I believe it is a no-brainer to build out a direct sales team, which will not only be appreciated by investors if it’s announced but should boost sales in the future.
Success in the US
The US market is tricky but crucial for WBTN, with the potential to become the largest contributor across its three revenue streams. I don’t believe there’s any company can take WBTN’s lead, it will just come down to the effectiveness of WBTN’s user acquisition strategy. After acquiring enough users in the US, I believe growth in the US will have the same effect as we saw in Japan/Korea in the early days – word-of-mouth becoming the primary source of acquiring new users.
Strong demand for WEBTOON’s IPs
IP Adaptations currently account for ~8% of revenue, but WBTN’s successful IPs are very attractive to OTT and movie production companies as low-risk, high-reward content. And since IP Adaptations scale more users to WBTN, successfully building out the IP Adaptations business will provide significant revenue and profit upside.
Risks to rating
- Korea is WBTN’s most mature market and growth was only 8% Y/Y last year. To resume growth, WBTN must enhance content, increase payer conversion, and scale advertising and IP Adaptations.
- Ads might not resonate with WBTN users, leading to low ROIs and less effective direct sales, which could slow growth in high-margin adverting sales, impacting overall profit.
- Web-comics aren’t well-established outside Korea and Japan, which will make it harder to penetrate the US market, where WBTN is most focused on, it will just be a matter of how well they can make Web-comics a trend in the US.
- Piracy could easily limit monetization despite WBTN’s efforts to protect content. New IP protection tools may not be fully effective, or advancements in tech could make piracy easier.
- WBTN heavily relies on its founder, Junkoo Kim, who holds a huge influence over the company. His continued leadership is crucial for long-term success, but this also means the company’s future is closely tied to one individual.
Financial outlook
Below, I provide a simplified profit & loss model using consensus estimates to showcase WEBTOON's key historical and projected financials.
Author's data
Cost of revenue
WBTN’s cost of revenue mainly includes Paid Content creator revenue shares, app store fees, and other variable costs. Creator revenue share is the largest component at ~55% of sales, while app store fees account for ~13%. Costs are higher in markets like Korea, where users prefer web purchases over mobile. Over time, WBTN will gradually reduce this margin as they negotiate better contracts with creators, expand into lower-cost regions, and increase higher-margin advertising.
SG&A
WBTN’s S&M expenses cover brand promotion, user acquisition, and loyalty campaigns, including free Coins. These costs also eat up compensation for the S&M team. S&M as % of sales is expected to decrease in 2024 as WBTN reduces spending in mature markets but will grow in newer markets with investments in direct sales and user acquisition.
G&A expenses include all other operating costs, such as platform maintenance, compensation, and other business costs. Due to the nature of the business model, G&A as % of sales should continue to decline as they scale over time.
Revenue
Company data
From 2023 to 2026, WBTN’s revenue is expected to rise at a ~18% CAGR, with paid content rising at 13%, IP Adaptations at 14%, and Advertising at 43%. As mentioned earlier, Advertising will increasingly become WBTN’s main source of revenue, similar to competitors such as TikTok, making it a more predictable business model. By 2026, Advertising nearly doubles its margin, and by 2030, it is expected to make up ~30% of total revenue.
Company data
WBTN reports revenue across Korea, Japan, and RoW. In Korea, revenue is driven by platforms like NAVER and MUNPIA, with 25M MAUs, representing ~50% market penetration. Japan contributes with LINE MANGA and eBJJ, showing ~15% penetration at 21M MAUs, where WBTN is focusing on converting more users to paying customers. RoW, including WATTPAD and YONDER, is the least mature, with 5% penetration at 124M MAUs, as WBTN continues to establish itself. In terms of growth from 2023 to 2026, RoW is projected to rise at a radical, 45% CAGR, followed by Japan at 19%, and Korea at a slow 6%.
What’s next?
WBTN achieved its first profit in 2023. The company expects a 3% adj. EBITDA margin in 2024, 8% in 2025, and 13% in 2026, targeting 15-20% in the long-term. Besides growth, the rise in Adj. EBITDA margin is guided to be higher because the Paid Content mix is set to decline from 80% to ~70% of total revenue, while Advertising grows from 11% to 20%, and IP Adaptations rises to 10-15%. In other words, the IP Adaptations and Advertising businesses have a more attractive gross margin, further boosting profit margins.
Gross margin expansion, which will be driven by international growth and the shift to higher-margin advertising, is crucial, with guidance of 35-40% long-term, huge difference from 23% in 2023. Moving users to web purchases and regulatory pressure on app store fees will also boost margins. S&M and G&A expenses are expected to be 10-15% of sales, providing leverage as WBTN scales. With little to no capex needs, FCF improvements should also follow the same boost that’s expected in the adj. EBITDA growth.
Valuation
Who are the right comps for WBTN? WBTN is unique without a clear publicly traded comp, so I compare it to companies like RBLX. Both target younger audiences (WBTN with web-comics and web-novels, RBLX with the metaverse), offer creator support with revenue sharing, and have advertising and IP adaptation growth potential. Both also show similar growth profiles, with WBTN’s revenue CAGR at 18%, matching RBLX’s Bookings CAGR. Adj. EBITDA margins are also comparable, though WBTN is earlier in its profit ramp, targeting 13% in 2026 compared to RBLX’s 18%. I also consider broader IP-based platforms like NFLX and engagement-driven social platforms like SNAP and PINS. Below, I provide a comprehensive comparable companies analysis:
Author's data
Now, taking a look at this comps, you may think, why is a company that’s growing at +20% CAGR on top-line and over 100% bottom-line trading at less than 1x revenue? This is of course, due to risk. Two distinct risks however. On one side, WBTN is a high-risk investment, unlike RBLX, NFLX, who are well-established players. On the other hand, more importantly, WBTN has low liquidity. Out of the 128.3M shares outstanding that WBTN offers, only 15.9M shares are available for trading by the public. In other words, WBTN has a 12.4% float. NAVER Corporation owns ~80.4M shares, or 62.6% and SoftBank owns 31.4, or 24.5% of shares, all of which make WBTN a controlled entity.
Nonetheless, WBTN remains undervalued in my view, even considering the risk. I use the comps above to value WBTN on a risk-adjusted basis, based on 2025E Gross Profit. I am not using EBITDA because (1) WBTN is in its early stages of profitability and (2) WBTN focuses on adj. EBITDA, which is accounted for differently than GAAP EBITDA. See below:
Author's data
I use the median 2025E EV/Gross Profit from the comps of 6.6x and apply a firm-specific risk discount (not the same as cost of capital or time value of money) to discount it by 50%, arriving at a 3.3x adjusted EV/Gross Profit. Why 50%? Numerous sources and courses explain how to discount an illiquid stock. Some suggest a discount of 10-20%, others 20-30%, and some use different formulas, but I prefer to rely on precedents. Financier released a piece indicating that, on average, illiquid stocks trade at a ~35% discount to their estimated value, with some even reaching up to 50%.
I prefer to be conservative when it comes to valuation because if you are overly conservative and it still yields an attractive valuation, then for me, it reduces the risk of investing at today’s prices. I not only used 50%, the high-end of discounts, but also the median EV/Gross Profit (6.6x) instead of the mean (8.2x). At the end of the day, valuation is not about predicting the price of an asset or setting a price target but about identifying whether something may be under- or over-valued. In my analysis, I find a $16 share price to be a more reasonable price for WBTN to trade at, and I believe it is under-valued by at least 28% at today’s prices.
Final Thoughts
In my view, nothing is certain about the future growth of WBTN. Currently, the market has priced in that Korea has become a mature market, Japan will become a mature market within the next five years, Advertising will slowly help boost sales in the long-term, profit margins will continue to rise, and RoW should continue to grow significantly, but only makeup 23% of sales by 2026.
My investment thesis isn’t those market expectations. In this article, I’ve explained my optimism for why I believe both Korea and Japan have room to outperform, that WBTN’s advertising business will very likely outperform because they have the power and monetization to introduce higher CPM ad formats, that WBTN’s IP Adaptions business is being overlooked as it is very attractive to OTT and movie production companies, and finally, my belief that success in the US will come sooner and stronger than anticipated.
Additionally, I am attracted to WEBTOON’s business and believe it has a MOAT because (1) WBTN is a unique storytelling platform that revolutionized digital storytelling by giving anyone the opportunity to share web-comics and web-novels; (2) it has a large user base with not only strong engagement but also the most loyal user base I’ve ever seen (i.e., 9 out of 10 users stick with WBTN for over a year and 77% agree content is unmatched to anything else); (3) WBTN has predictable revenue streams that are increasingly more diversified as Advertising and IP Adaptions continue to out-grow the Paid Content business; (4) it operates in 150+ countries, giving it access to over a $1 trillion TAM across its three business lines; and (5) WBTN is nearly a monopoly in its industry, giving it significant pricing power to leverage and scale over time. All said, I am initiating my coverage on WEBTOON with a buy rating and a $16 price tag.
