WEBTOON (WBTN)

Digital storytelling platform WEBTOON (NASDAQ:WBTN) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 8.5% year on year to $348.3 million. Guidance for next quarter’s revenue was optimistic at $385 million at the midpoint, 2.3% above analysts’ estimates. Its GAAP loss of $0.03 per share was 85.6% 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 can indicate its business quality. Rapid growth can signal it’s benefiting from an innovative new product or burgeoning market trend.

With $1.37 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.

WEBTOON also discloses 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 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 reported year-on-year revenue growth of 8.5%, and its $348.3 million of revenue exceeded Wall Street’s estimates by 2.2%. Company management is currently guiding for a 10.7% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 11.2% over the next 12 months, an improvement versus the last two years. This projection is admirable and indicates its newer products and services will catalyze better top-line performance.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

WEBTOON’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging negative 6.5% over the last four years. Unprofitable business services companies that fail to improve their losses or grow sales rapidly require extra attention. In WEBTOON’s case, it seems it’s deferring current profits by investing heavily.

Looking at the trend in its profitability, WEBTOON’s operating margin might fluctuated slightly but has generally stayed the same over the last four years, which doesn’t help its cause.

WEBTOON’s operating margin was negative 2.5% 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 $6.38 million in Q2, equivalent to a 1.8% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

WEBTOON is a well-capitalized company with $581.5 million of cash and $3.65 million of debt on its balance sheet. This $585.2 million net cash position is 49.2% 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’ revenue, EPS, and EBITDA expectations this quarter. We were also glad its revenue guidance for next quarter exceeded Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 24.7% to $11.67 immediately following the results.

Updated: November 7, 2025 at 11:13 PM EST

Are you wondering whether to buy WEBTOON or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

WEBTOON is a rock-solid business worth owning. Although the company’s operating margins reveal poor profitability compared to other business services companies, its astounding EPS growth over the last two years shows its profits are trickling down to shareholders. On top of that, its projected EPS for the next year implies the company will generate shareholder value.

WEBTOON’s P/E ratio based on the next 12 months is 108.2x. Expectations are high given its premium multiple, but we’ll happily own WEBTOON as its fundamentals shine bright. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany high valuations.

Wall Street analysts have a consensus one-year price target of $20.19 on the company (compared to the current share price of $16.45).