WEBTOON (WBTN)

Digital storytelling platform WEBTOON (NASDAQ:WBTN) fell short of the markets revenue expectations in Q3 CY2025, but sales rose 8.7% year on year to $378 million. Next quarter’s revenue guidance of $335 million underwhelmed, coming in 15.8% below analysts’ estimates. Its GAAP loss of $0.09 per share was 23.9% above analysts’ consensus estimates.

Company Overview

Pioneering a vertical-scrolling format optimized for mobile devices, WEBTOON Entertainment (NASDAQ:WBTN) operates a global platform where creators publish serialized web-comics and web-novels that users can read in bite-sized episodes.

AI-driven content creation, personalized media experiences, and digital advertising are evolving, which could benefit companies investing in these themes. For example, companies with a portfolio of licensed visual content or platforms facilitating direct monetization models could see increased demand for years. On the other hand, headwinds include growing regulatory scrutiny on AI-generated content, with many publishers balking at anything that gets no human oversight. Additional areas to navigate include the phasing out of third-party cookies, which could make traditional ways of tracking the online behavior of consumers (a secret sauce in digital marketing) much less effective.

WEBTOON's competitors include Kakao Webtoon and Kidari Studio in Korea, Piccoma and Jump Toon in Japan, and Tapas and Manta in the U.S. In the web-novel space, it competes with KakaoPage and RIDI in Korea, and Radish, GoodNovel, and Dreame in the U.S. More broadly, WEBTOON competes for user attention with social media platforms like TikTok and Instagram, streaming services like Netflix, and gaming companies.

A company’s top-line performance is one signal of its overall business quality. Strong growth can indicate it’s riding a successful new product or emerging trend.

With $1.40 billion in revenue over the past 12 months, WEBTOON is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels.

We can dig further into the company’s revenue dynamics by analyzing its number of monthly active users, which reached 155 million in the latest quarter. Over the last two years, WEBTOON’s monthly active users averaged 3.2% year-on-year declines. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen.

This quarter, WEBTOON’s revenue grew by 8.7% year on year to $378 million, missing Wall Street’s estimates. Company management is currently guiding for a 5.1% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 13.7% over the next 12 months, an improvement versus the last two years. This projection is healthy and implies its newer products and services will catalyze better top-line performance.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

WEBTOON’s high expenses have contributed to an average operating margin of negative 6.3% over the last four years. Unprofitable business services companies require extra attention because they could get caught swimming naked when the tide goes out.

On the plus side, WEBTOON’s operating margin rose by 7.9 percentage points over the last four years. Still, it will take much more for the company to reach long-term profitability.

WEBTOON’s operating margin was negative 3.9% this quarter.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

WEBTOON broke even from a free cash flow perspective over the last three years, giving the company limited opportunities to return capital to shareholders.

WEBTOON’s free cash flow clocked in at $11.84 million in Q3, equivalent to a 3.1% margin. This result was good as its margin was 3 percentage points higher than in the same quarter last year. Its cash profitability was also above its three-year level, and we hope the company can build on this trend.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

WEBTOON is a well-capitalized company with $584.6 million of cash and $26.3 million of debt on its balance sheet. This $558.3 million net cash position is 25.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see WEBTOON beat analysts’ EPS expectations this quarter. On the other hand, its revenue guidance for next quarter missed and its revenue fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 18.3% to $13.75 immediately following the results.

Updated: December 4, 2025 at 11:07 PM EST

Before investing in or passing on WEBTOON, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

There are several reasons why we think WEBTOON is a great business. Although the company’s operating margins reveal poor profitability compared to other business services companies, its expanding adjusted operating margin shows the business has become more efficient. On top of that, its astounding EPS growth over the last two years shows its profits are trickling down to shareholders.

WEBTOON’s EV-to-EBITDA ratio based on the next 12 months is 91.9x. This valuation may appear high at first glance, but the multiple is deserved because WEBTOON’s fundamentals really stand out. We think the stock is attractive here.

Wall Street analysts have a consensus one-year price target of $15.81 on the company (compared to the current share price of $14.31), implying they see 10.5% upside in buying WEBTOON in the short term.