S-1 1 d396527ds1.htm S-1 S-1
Table of Contents

As filed with the Securities and Exchange Commission on May 31, 2024.

Registration No. 333-     

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

WEBTOON ENTERTAINMENT INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7372   81-3830533

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

5700 Wilshire Blvd., Suite 220

Los Angeles, CA 90036

(323) 424-3795

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Junkoo Kim

WEBTOON Entertainment Inc.

5700 Wilshire Blvd., Suite 220

Los Angeles, CA 90036

(213) 347-4841

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Michael Kim, P.C.

Joshua N. Korff, P.C.

Edward J. Lee, P.C.

Kirkland & Ellis LLP

601 Lexington Avenue

New York, New York 10022

(212) 446-4800

 

Maximilian Jo

General Counsel and Corporate Secretary

WEBTOON Entertainment Inc.

5700 Wilshire Blvd., Suite 220

Los Angeles, CA 90036

(213) 347-4841

 

Michael Kaplan

Dan Gibbons

Judah Bareli

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

LOGO

 

WEB TOON


Table of Contents

LOGO

To be the world's storytelling technology platform empowering creation by anyone, for everyone.


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED    , 2024.

   Shares

 

 

LOGO

WEBTOON ENTERTAINMENT INC.

Common Stock

 

 

This is an initial public offering of shares of the common stock of WEBTOON Entertainment Inc. We are offering     shares of our common stock to be sold in this offering.

Prior to this offering, there has been no public market for shares of our common stock. We estimate that the initial public offering price per share will be between $    and $    . We have applied to list our common stock on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “WBTN.”

We are treated as an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012, for certain purposes until the earlier of the completion of this offering or the end of the one-year period beginning on December 31, 2023 and, as such, we have elected to take advantage of certain reduced public company reporting requirements for this prospectus. See “Risk Factors” and “Prospectus Summary—Emerging Growth Company.”

Upon the completion of this offering, NAVER Corporation (“NAVER”) will beneficially own approximately    % of the voting power of our shares of common stock eligible to vote in the election of directors (or    % if the underwriters exercise in full their option to purchase additional shares of our common stock to cover over-allotments). As a result, we will be a “controlled company” as defined under the corporate governance rules of Nasdaq. See “Management—Controlled Company Exemption.”

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 26 to read about factors you should consider before purchasing shares of our common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per share      Total  

Initial public offering price

   $           $       

Underwriting discounts and commissions(1)

   $        $    

Proceeds to us, before expenses

   $        $    

 

(1)

See “Underwriting” for a description of the compensation payable to the underwriters.

The underwriters have the option, for a period of 30 days from the date of this prospectus, to purchase up to an additional    shares from us at the initial public offering price less the underwriting discount and commissions to cover over-allotments.

The underwriters expect to deliver the shares of common stock against payment on or about    , 2024.

 

 

 

Goldman Sachs & Co. LLC   Morgan Stanley   J.P. Morgan   Evercore ISI
Deutsche Bank Securities   UBS Investment Bank   HSBC
Raymond James   LionTree

 

 

Prospectus dated    , 2024.


Table of Contents

TABLE OF CONTENTS

 

A LETTER FROM JUNKOO KIM, FOUNDER AND CEO

     vi  

PROSPECTUS SUMMARY

     1  

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

     23  

RISK FACTORS

     26  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     74  

USE OF PROCEEDS

     77  

DIVIDEND POLICY

     78  

CAPITALIZATION

     79  

DILUTION

     81  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     83  

BUSINESS

     121  

MANAGEMENT

     203  

EXECUTIVE COMPENSATION

     210  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     220  

PRINCIPAL STOCKHOLDERS

     224  

DESCRIPTION OF CAPITAL STOCK

     226  

SHARES ELIGIBLE FOR FUTURE SALE

     235  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF OUR COMMON STOCK

     240  

UNDERWRITING

     244  

LEGAL MATTERS

     250  

EXPERTS

     250  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     250  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

Through and including    , 2024 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by us or on our behalf. We and the underwriters take no responsibility for, and cannot assure you as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of our common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock. Our business, results of operations, financial condition or prospects may have changed since that date.

Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States (“U.S.”). Persons outside the U.S. who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the U.S.

Pursuant to the laws of South Korea (“Korea”), we have filed with the Financial Services Commission of Korea a separate securities registration statement in the Korean language for the benefit of investors in Korea who may purchase shares of our common stock in the secondary market after the completion of the offering

 

i


Table of Contents

described in this prospectus (“post-IPO Korean investors”). Certain information in such filing is applicable only to the post-IPO Korean investors and therefore is not included in this prospectus. The information contained in such filing does not and will not form a part of this prospectus.

Market and Industry Data

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations, market position, market share, market opportunity and market size, has been obtained from third-party sources, including industry publications and other reports, internal data sources and management estimates, which we believe to be reliable and based on reasonable assumptions.

We have not commissioned any of the industry publications or other reports or sources generated by third-party providers that we refer to in this prospectus. Our management estimates are derived from such third-party sources, other publicly available information, our knowledge of our industry, internal company research, surveys, information from our customers and third-party partners, trade and business organizations and other contacts in the markets in which we operate and assumptions based on this information and knowledge.

Data regarding our industry and our market position and market share within our industry are inherently imprecise and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate market size, market position and market share within our industry. In addition, assumptions and estimates of our and our industry’s forecasts, projections and future performance involve risks and uncertainties and are subject to change based on various factors, including those described in the section of this prospectus entitled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in estimates made by third parties and us. See “Cautionary Note Regarding Forward-Looking Statements.”

Stock Split

After the effectiveness of the registration statement of which this prospectus forms a part and before the completion of this offering, we will effectuate a    -for-one forward stock split of our common stock (the “Stock Split”). The historical audited consolidated financial statements and historical unaudited condensed consolidated financial statements and the related notes to those statements included elsewhere in this prospectus have not been adjusted for the Stock Split. Unless otherwise indicated, all other share and per share data in this prospectus have been retroactively adjusted, where applicable, to reflect the Stock Split as if it had occurred at the beginning of the earliest period presented.

Trademarks, Trade Names and Service Marks

Our design logos, “WEBTOON” and our other registered or common law trademarks, trade names and service marks appearing in this prospectus are the property of WEBTOON Entertainment Inc. or its affiliates. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, trade names and service marks. This prospectus also contains additional trademarks, trade names and service marks belonging to other parties. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, such other parties.

 

ii


Table of Contents

Non-GAAP Financial Measures

This prospectus contains certain financial measures, including EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, revenue on a constant currency basis and revenue growth on a constant currency basis that are not required by, or prepared in accordance with, U.S. generally accepted accounting principles (“GAAP”). We refer to these measures as “non-GAAP” financial measures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for our definitions of these non-GAAP measures, information about how and why we use these non-GAAP measures and a reconciliation of each of these non-GAAP measures to its most directly comparable financial measure calculated in accordance with GAAP.

 

iii


Table of Contents

GLOSSARY

As used in this prospectus, unless stated otherwise or the context otherwise requires:

 

   

amateur creator(s)” means creators who do not currently monetize their content as Paid Content on our platform as they are subject to our standard terms and conditions without Paid Content revenue sharing provisions. Amateur creators may monetize through other methods, including advertising if they meet certain viewership and subscriber thresholds.

 

   

Coins” means our in-app currency, which our users can purchase, earn by completing certain advertisement-associated actions or receive during in-app promotional events.

 

   

consumer product unit(s)” means merchandise produced and sold to consumers adapted from certain content on our offerings.

 

   

creators” means individuals who upload content to our platform and whose content remains available on our platform. Total creators include both amateur and professional creators.

 

   

Daily Pass” means a digital pass that provides users with access to locked episodes primarily from a series that is no longer publishing new episodes.

 

   

Daily Time Spent Per Active User” means the total time our users spent on our platform on a given day divided by the number of users who spent time on our platform on that given day, averaged over each day in the given period.

 

   

eBookJapan” means our eBook (including digital manga, which is manga in a digital format), web-comic and web-novel offering in Japan dedicated to professional creators.

 

   

episode” means a periodically uploaded chapter or installment of a web-comic or web-novel title.

 

   

Fast Pass means a digital pass that provides users with early access to upcoming episodes for ongoing series of content on our platform, which must be purchased with Coins.

 

   

IP Adaptations” means adaptations of certain content on our offerings into other media formats such as film, streaming series, games and merchandise.

 

   

LINE MANGA” means our web-comic and digital manga offering in Japan dedicated to both amateur and professional creators.

 

   

manga” means a style of Japanese comic books and graphic novels typically presented in print format.

 

   

MAU” or “monthly active users” means users who visited our offerings at least once in the applicable calendar month, averaged over each month in the given period.

 

   

Monthly Paid Content ARPPU” or “Monthly Paid Content average revenue per paying user” means the average Paid Content revenue in a given month divided by the number of monthly paying users for such month, averaged over each month in the given period.

 

   

MPU” or “monthly paying users” means users who have paid to access Paid Content in the applicable calendar month, averaged over each month in the given period.

 

   

Munpia” means, as context requires, Munpia Inc., one of our wholly-owned subsidiaries in Korea, or Munpia, the namesake web-novel offering and web-novel creator community in Korea run by Munpia Inc.

 

   

NAVER” means NAVER Corporation, a global information communications technology (ICT) company and our parent, and its subsidiaries and affiliates, excluding WEBTOON, unless context otherwise requires.

 

   

NAVER SERIES” means our eBook, web-comic and web-novel offering in Korea dedicated to professional creators.

 

   

NAVER WEBTOON means NAVER WEBTOON Ltd., one of our wholly-owned subsidiaries in Korea that operates our offerings including WEBTOON and WEBTOON Korea.

 

iv


Table of Contents
   

offering” means our mobile applications, websites or specific sections within such applications and websites where our creators post content, including WEBTOON, WEBTOON Korea, LINE MANGA, NAVER SERIES, eBookJapan, Munpia and Wattpad.

 

   

Paid Content” means content on our offerings that our users need to pay to access, including through the use of Coins.

 

   

Paid Content GMV” means the dollars spent in a period by our users to access Paid Content on our platform, which primarily consists of the dollar value of all Coins purchased by our users (no matter when purchased) and subsequently redeemed to access Paid Content on our platform during the applicable period.

 

   

Paying ratio” means, with respect to a given period, the ratio of MPU divided by MAU.

 

   

Paying user” means, with respect to a given period, a user who has paid to access Paid Content on our platform.

 

   

professional creator(s)” means creators who monetize through Paid Content on our platform under formal creator agreements with Paid Content revenue sharing provisions.

 

   

Studio LICO” means Studio LICO Corporation, one of our wholly-owned subsidiaries in Korea that produces web-comics and animations based on content on our offerings.

 

   

Studio N” means Studio N Corporation, one of our wholly-owned subsidiaries in Korea that produces feature films, TV series and animations based on content on our offerings.

 

   

title” means a sequential web-comic or web-novel story that is comprised of episodes.

 

   

Wattpad” means, as context requires, Wattpad Corp., one of our wholly-owned subsidiaries in Canada which was acquired by NAVER in May 2021 and subsequently acquired by us from NAVER in June 2023, or Wattpad, the namesake global web-novel offering with a global community of creators who are mostly amateur creators that is run by Wattpad Corp.

 

   

Wattpad WEBTOON Studios” means Wattpad WEBTOON Studios Inc., one of our wholly-owned subsidiaries in Canada that produces feature films, TV series and animations based on content on our offerings.

 

   

web-comics” means digitally created and serialized stories expressed through vertical, continuous and graphical content.

 

   

web-novels” means digitally created, serialized and text-based stories.

 

   

WEBTOON” means, as context requires, WEBTOON Entertainment Inc., a Delaware corporation, and its consolidated subsidiaries, or WEBTOON, the namesake global web-comic offering run by NAVER WEBTOON.

 

   

WEBTOON English” means WEBTOON offered in English.

 

   

WEBTOON Korea” means NAVER WEBTOON, our web-comic offering in Korea.

 

v


Table of Contents

A LETTER FROM JUNKOO KIM, FOUNDER AND CEO

Nearly twenty years ago, I was a search engineer at NAVER, who launched a side project: WEBTOON. The initial vision was very simple, to bring comics to more people around the world. I imagined a world where American, Korean, Japanese, or French comic creators weren’t limited by print or borders, and could instead reach new readers all over the world online. The project was born out of my own love of comics, which I’ve been passionate about since I was young. Comics are like a window into another world, capable of transporting readers to distant, fantastic places, and creating new perspectives. I’ve long admired the talented artists who create comics and have the incredible gift of building entire universes on a page. I truly love visual stories and storytelling, which is why I am so passionate about helping a diverse new generation of creators succeed. Since our founding, I’ve been asked “WHY” I founded this business and “WHY” it has grown into a global leader. Here is the WHY.

WEBTOON tells stories. For me, comics have always created a sense of joy, exploration and belonging. I wanted to create a platform that would give any individual the ability to experience and share their stories with the world. A platform where fans like me could discover the limitless imagination of storytellers around the world. I realized that I could harness the power of technology to pioneer an entirely new form of entertainment: the web-comics. This format displays art and text in a single continuous, vertical scroll, allowing stories to develop and evolve in real time as the user scrolls. The use of white space highlights a character’s isolation and loneliness. A crowded panel creates chaos. Long blank panels build suspense. Action words and onomatopoeia, sometimes bursting out of the four corners of the panel, bring a vivid sense of motion and sound to still images. The magic of the webcomic format is its ability to unleash creativity for storytellers.

WEBTOON empowers creators. Anyone with a story to tell can publish on WEBTOON and reach millions. Many creators come to WEBTOON for that reason alone: to share their stories. Some creators, however, are building small businesses on our platform. There’s another aspect to the magic of the webcomic format: users are motivated to pay for content. Most stories on our platform are free. Some episodes, however, are paid – such as the most recent episodes of a live story. An average episode costs only a few cents each, so the barrier is very low for users. Users can thus support their favorite creators. WEBTOON has paid out over $2.8 billion to creators from 2017 to 2023. The average professional creator is earning $48,000 a year and the top 100 are earning $1 million. Many stories have also become global fandoms, adapted into film, streaming series, animation, video games and more. And many of these adaptations have ranked #1 globally on platforms such as Netflix, Amazon Prime Video, and Apple TV. I believe the next generational entertainment franchises will be created by whoever can harness the creativity of the vast global user base, not by investing millions of dollars into script development by professional writers, directors, and producers. Imagine for yourself the next decade’s biggest hit IP franchise – our goal is for that franchise to be discovered and developed by WEBTOON.

WEBTOON builds community. The final magic of the webcomic format is quite simple: users love it. The ultimate power of WEBTOON lies in the interactions between these users and their favorite creators as fandoms are built around beloved stories. That starts with a highly engaging format – on average users spend thirty minutes on WEBTOON – reading between five and ten of their favorite episodes each day. Users leave feedback and praise for creators, approximately one million posts each month. The resulting community brings together approximately 170 million users each month from over 150 countries in the world, connecting them with 24 million creators. Our roots are in Korea, where half the population visits our platform each month, but our community is truly global. In 2013, we launched in Japan given familiarity with similar content types, and today we have over 20 million monthly users there; our format is quickly gaining popularity with North American users where we have more than 20 million monthly users and 75% of users are Gen Z as of December 2023; and our platform has become truly global with over half of all monthly users outside of these three markets.

Those are the reasons I started WEBTOON: to share stories, to empower creators, and to build community. That is what has driven me and the entire organization for the last two decades. And that will continue to be our strategy going forward as a public company.

 

vi


Table of Contents

On a final note, I want to say thank you. To our fans, creators, and employees. We would not be where we are today without you. To fans, thank you for your endless dedication to this art form and community. To creators, thank you for bringing richness and imagination to the lives of millions globally. And to the entire WEBTOON team, thank you for your passion – towards this company and towards this community. I am inspired every day by you all. While this IPO is the culmination of efforts over the last two decades, it is also in many ways a new beginning. I cannot wait to discover what stories we will write next.

Best,

Junkoo Kim

Founder and CEO

 

vii


Table of Contents

PROSPECTUS SUMMARY

This summary highlights selected information included elsewhere in this prospectus and does not contain all of the information you should consider before making an investment decision to purchase shares of our common stock. You should read this entire prospectus carefully, including the sections entitled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision to purchase shares of our common stock. Unless otherwise indicated or the context otherwise requires, references in this prospectus to “WEBTOON,” the “Company,” “we,” “us,” “our” or similar terms refer to WEBTOON Entertainment Inc., a Delaware corporation, and its consolidated subsidiaries.

Our Vision

To be the world’s storytelling technology platform empowering creation by anyone, for everyone.

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. Our community connects 24 million creators with approximately 170 million monthly active users in over 150 countries around the world.1

Our founder, Junkoo Kim, started WEBTOON in 2005 while he was working as a search engineer at NAVER, the largest internet company in Korea. Junkoo was a lifelong lover of comics and their rich and vibrant worlds and diverse characters. He wanted to create a platform that empowered creators to share stories and for fans, like himself, to discover this unique content. Instead of a traditional storytelling format, confined to a page or screen, he pioneered something different. Through serialized releases of bite-sized episodes available online, he created a format that was not only easily accessible and highly engaging for fans, but also easier for creators to create and share with a wide audience. WEBTOON initially focused almost entirely on seeding differentiated content and fostering user engagement until we began our Paid Content business model in 2012 and then began operating as an independent unit within NAVER in 2017. Though our roots are in Korea, we have built a truly global platform in the nearly two decades since our founding, broadening the reach and impact of our creators and their content.

Content on our platform tells stories created by our creators through multiple immersive formats. On our platform, creators tell long-form stories through our iconic serialized narratives in the form of short-form, bite-sized episodes. This content format results in a habitual behavior with an engaged user base. These stories are told primarily 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. For both formats, the serialized release of content is analogous to chapters of a book. These formats are not only accessible and highly engaging for fans, but also easier for creators to create, share and monetize their stories. We are able to further 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. Over the past decade, we have adapted over 900 titles, including over 100 streaming series and films, more than 200 books, over 70 games and over 11 million consumer product units as of March 31, 2024.

Creators power our content engine by authoring immersive visual stories, or titles, developing imaginative new characters and inspiring fandoms. Our creator base ranges from the individual enthusiast with a love of

 

1 

The number of creators is as of December 31, 2023. The number of monthly active users and countries are as of the quarter ended March 31, 2024 and as of March 31, 2024, respectively.

 

1


Table of Contents

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. Our platform serves both amateur and professional creators. Professional creators are defined as creators who monetize through Paid Content on our platform under formal creator agreements with Paid Content revenue sharing provisions. We consider these two groups of creators separately because their intentions are often distinct. Amateur creators, which make up the vast majority of the 24 million creators on our platform, may come to our platform simply for the love of our unique form of storytelling and to connect with an engaged and like-minded audience. On the contrary, professional creators are often building a brand and an enterprise on our platform. In the year ended December 31, 2023, the average earnings per professional creator on our platform were $48 thousand, with top 100 creators earning an average of $1 million, and, cumulatively, our creators earned over $2.8 billion between 2017 and 2023. Due to the deep and continuous user engagement fostered through our serialized format, content on our platform has greater longevity. Some of the most successful series on our platform continue to attract new users after more than 10 years.

Users come 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. In fact, according to our April 2024 survey we conducted of our U.S. users, 97% agreed that WEBTOON is entertaining and fun, achieving a higher score than other platforms including Roblox, Netflix and TikTok. The web-comic format has grown in popularity globally, with particular affinity among Gen Z audiences. As of March 31, 2024, our user base was highly global across over 150 countries with over half of our monthly active users coming from outside of our core markets of Korea, Japan and the U.S. and Canada (“North America”). Our largest proportion of users are Gen Z (under 24 years old) and millennials (25 to 34 years old), who are mobile-first, highly engaged users with increasing purchasing power.

Community reinforces 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.

This vibrant ecosystem is amplified by our foundational technology and artificial intelligence capabilities, which enable content creation, along with our content discovery and recommendation engines. Our content creation technology helps creators enhance their storytelling skills, tailor the content to various global audiences and build more engaged, wider fan bases around the world. For users, our technology enables a personalized recommendation model and rule-based curation methodology to encourage new content discovery. These tools are highly scalable across markets and our newer markets are able to benefit from the content and platform infrastructure we have invested in and refined in Korea and Japan.

Our business model is driven by the shared success of all those who participate in our platform. The result is earnings for creators, diversity of content for users to enjoy, high-intent and relevant audiences for advertising partners and a multitude of intellectual property to be adapted by media partners. Greater engagement leads to higher revenue growth and stronger user economics, which in turn provides us the benefit of diversified revenue streams and allows for reinvestment into the creators on our platform. For the year ended December 31, 2023, we generated revenue of $1,282.7 million, net loss of $144.8 million and Adjusted EBITDA of $11.7 million, representing a net loss margin of (11.3)% and an Adjusted EBITDA Margin of 0.9%. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

 

2


Table of Contents

Our Platform

Our creators, users and content drive a powerful community flywheel. By creating and publishing new and diverse content, creators on our platform help drive the scale of our user base. In turn, users build relationships with creators through real-time feedback and praise on content; fandoms built around popular characters, storylines or in-story universes; and monetary support through payments for access to content. This attracts new creators to our platform, who expand our community and deepen engagement with fans, which leads to an even stronger feedback loop and encourages more content creation. We further amplify this flywheel through other monetization models, including advertising and IP Adaptations. Finally, our platform is underpinned by our foundational technology and artificial intelligence, enabling content creation and discovery and recommendation. The result is increased user engagement, creator prosperity and, ultimately, WEBTOON success.

 

 

LOGO

 

(1)

Graphic shows user metrics, creator metrics and content metrics as of the quarter ended March 31, 2024, as of December 31, 2023, and as of December 31, 2023, respectively.

Our Content

We pioneered a new form of digital storytelling. Most of our content consists of long-form stories that are serialized into short-form image- or text-based pieces released on a weekly schedule. We focused on the development of this type of digital content because this mode of storytelling is not only appealing to our users, but it is also well suited to the success of individual creators. Creators can write new stories simply and easily, without expensive equipment or training. Creators are empowered to experiment and innovate because the time and resources required for each individual episode is less intensive than what would have gone into the entire title, and because creators receive real-time feedback from users. The bite-sized format leads to a high velocity of new content being released, driving more frequent user engagement. This format is specifically popular with Gen Z and millennial users because of their preference for bite-sized, flexible content. Finally, this format lends itself to a highly scalable content model that can be monetized both across geographic markets and across media formats via adaptations such as film and streaming series.

 

3


Table of Contents

Web-comics are digitally created, weekly serialized stories expressed through vertical, continuous graphical content. Web-comics are optimized for scrolling and often include unique special effects, such as sounds and animations. Web-comics generate the vast majority of revenue on our platform. As of December 31, 2023, creators had published over 450 thousand web-comic stories on our platform. As of December 2023, we enjoyed the number one market position in web-comics in all of our major geographies, including Korea, Japan, the U.S. and multiple geographies throughout Southeast Asia and Europe in terms of monthly active users.2

Web-novels are digitally created, weekly serialized stories expressed through text with many titles releasing new content three to five times a week. As opposed to an eBook—a traditional long-form, text-based, online book (often an online version of a print book)—a web-novel is a long-form story serialized into short-form. Similar to our iconic web-comic format, the serialized nature of web-novels encourages habitual engagement from our users. Web-novels have an even lower barrier to creation than web-comics given that no illustration is required. This leads to a greater velocity of content generation. As of December 31, 2023, creators had generated over 54 million web-novel stories on our platform. As of December 2023, we enjoyed number one market positions in web-novels in Korea and the U.S. in terms of monthly active users.3

The size, breadth and depth of our content library are our key competitive strengths. Because our content is bite-sized, we empower creators to experiment and innovate, and receive feedback directly and in real time. This results in a high velocity of new content creation, with 124 thousand episodes published daily in the quarter ended December 31, 2023. On our platform, there are a number of stories that generate strong demand—117 stories generated over $1.0 million of Paid Content GMV in the year ended December 31, 2023. However, our stories are also well-distributed with less than 20% of our Paid Content GMV in that year generated by our 100 highest grossing stories.

Our content resonates globally, and our strategy includes the translation, adaptation and exportation of stories from one geography into another. For example, True Beauty, a romantic-comedy web-comic that was published in 2018 by a Korean creator, Yaongyi, has reached approximately 6.4 billion cumulative page views across 10 available languages, with over 76% of the page views coming from outside of Korea as of March 31, 2024. The title was also adapted into a streaming series in 2020 and reached global audiences on Netflix, Prime Video and Apple TV. Similarly, Lore Olympus, a web-comic that was published in 2018 by a creator in New Zealand, Rachel Smythe, has reached over 1.7 billion cumulative page views across seven available languages as of March 31, 2024. In any given market, we see the success of local content (original content created on our platform in the local language), as well as imported content (original content translated into other languages).

Our global platform enjoys connectivity and synergy across content, creators and users. We also tailor our strategy by geography and often operate multiple consumer offerings to best serve local consumer and creator preferences. For example, in Korea, we offer ORIGINALS for professional web-comic content, CANVAS (locally known as Challenge Comics) for amateur web-comic content and multiple web-novel offerings targeted at different audiences. In Japan, our primary offering is LINE MANGA. Because of the widespread popularity of traditional offline manga, our local strategy uniquely includes the digitization of traditional offline manga, intended as a user acquisition tool. We have successfully converted digitized manga readers into consumers of our WEBTOON-format web-comics, with web-comics now accounting for the majority of content viewed by

 

2 

Data is from data.ai (a Sensor Tower company). The monthly active users number from data.ai (a Sensor Tower company) only includes smartphones.

3 

Market positions are based on aggregation of smartphone application and desktop and mobile web monthly active users. The smartphone application data is from data.ai (a Sensor Tower company), and the desktop and mobile web data is based on estimated metrics from SimilarWeb. Market position in Korea includes monthly active users for NAVER SERIES.

 

4


Table of Contents

daily users on our platform in Japan. In North America, we adapted our ORIGINALS and CANVAS offerings to local consumers by, for example, adding more social features that are popular with North American users.

We have strategically used acquisitions to grow our audience, deepen our reach in new geographies, diversify our creator base and expand our capabilities. In June 2023, we acquired, from NAVER, Wattpad, the largest global web-novel distribution platform for English-language content, with approximately 89 million monthly active users as of the quarter ended March 31, 2024, which had been our sister entity since it was acquired by NAVER in May 2021. The Wattpad acquisition expanded our web-novel offering into North America and Europe and deepened our library of web-novels, which serves as a rich source of content for adaptations into web-comics. It also widened our creator and user acquisition funnel in North America and Europe. In 2022, we acquired eBOOK Initiative Japan Co., Ltd. (“eBIJ”), a leading Japanese publisher of web-based stories, thereby consolidating the then-largest web-based (eBookJapan) and app-based (our LINE MANGA) online comic offerings into one and strengthening our market leadership in Japan.

Our Creators

WEBTOON is powered by our creators and the content they bring to life on our platform. Our creators are inspired by the ability to tell their stories globally. Our creator strategy is to reach the broadest number of potential creators globally, to provide a platform that enables creator success and then to drive impact and earnings for our creators.

Our platform serves both amateur and professional creators. Amateur creators are defined as those who do not currently monetize through Paid Content on our platform and professional creators are defined as those who do so. As amateur creators gain popularity on our platform, we may sign formal creator agreements with them which will allow them to share revenue generated by users paying to access their content and thereby become professional creators.

Amateurs are hobbyists and enthusiasts; anyone can become an amateur creator. These creators come to our platform because of their love of storytelling and the complete freedom to express whatever they desire (without editorial interference), as well as to access our high-intent and engaged global audience and the potential for future financial success. Professional creators, on the other hand, are building small businesses on our platform. Professionals can include both WEBTOON-born amateur creators that ultimately build a large following, as well as existing professional content creators from other industries or publishers.

The scale of our creator earnings is an indicator of our success in empowering creators. Cumulatively, our creators earned over $2.8 billion between 2017 and 2023. For the year ended December 31, 2023, professional creators earned on average $48 thousand per creator, top 100 creators earned on average $1 million per creator, and 483 creators earned at least $100 thousand.

Our creator base is also well distributed globally. Initially, our creator and user bases were concentrated in Korea. While in our early years we focused on cultivating the Korean creator ecosystem and content, we always recognized our platform’s global potential and aspired to expand globally. Over almost two decades since our founding, WEBTOON has done just that. As of December 31, 2023, our platform had 55.1 million pieces of content for users everywhere to enjoy, and including Wattpad, we empowered a creator base of 24 million.

Our Korean creators demonstrate the power of our platform and its global reach. Korea accounts for over half of our platform’s professional and amateur creators (excluding Wattpad), based on publishing language as a proxy for location. There is demonstrated global demand for Korean stories as 47% of titles by professional creators outside of Korea are local to Korea and have been translated into other languages or imported into other geographies as of December 31, 2023. There were 1,163 and 655 imported titles available on LINE MANGA and WEBTOON English, respectively, as of December 31, 2023, an annual increase of 48% and 34%, respectively.

 

5


Table of Contents

Our Users

As of the quarter ended March 31, 2024, approximately 170 million monthly active users from over 150 countries engaged on our platform across mobile and desktop devices. Our users are diverse across age, geography and gender. Our largest proportion of users are Gen Z (under 24 years old) and millennials (25 to 34 years old), who are mobile-first, highly engaged users with increasing purchasing power.

Our user strategy is to bring scaled audiences around the globe to our platform, to deliver them unique and easy-to-consume content, customized for their preferences, to drive more habitual engagement and, ultimately, to induce them to pay for content.

We acquire a significant portion of our user base through organic means. The strength of our brand, our leading market position in multiple regions and the viral nature of our stories enable us to benefit from word-of-mouth user adoption. We amplify organic marketing through collaborations with local creators or other popular technology platforms, such as our collaborations with Discord, Patreon and DC Comics, as well as through IP Adaptations. We also employ paid marketing strategies such as brand marketing, performance marketing and in-app giveaways, especially in countries such as the U.S., where we are meaningfully underpenetrated compared to our addressable user opportunity.

Once on our platform, we focus on user engagement and retention through multiple means. Our primary engagement and retention tool is the nature of our content. According to our April 2024 survey we conducted of our U.S. users, 77% of respondents agreed that WEBTOON has content they cannot find anywhere else, and 97% agreed that WEBTOON is entertaining and fun, achieving a higher score than other platforms including Roblox, Netflix, and TikTok. Users who discover our platform typically remain active because of the serialized form of our compelling content, which naturally creates a regular cadence of user frequency, and because of our simple and easy-to-use user interface. For instance, according to our April 2024 survey of our U.S. users, 85% of users visit WEBTOON four or more times per week and more than 50% visit WEBTOON seven or more times per week. We historically experience higher user engagement and monetization in the third quarter of the calendar year due to the seasonal impacts of global vacation and holiday schedules of our users. We also leverage artificial intelligence combined with data on prior user consumption trends to provide users with a curated, personalized experience. In the month of December 2023, 33% of our NAVER SERIES readers and 35% of our WEBTOON English readers read a new story that we recommended. Finally, we allow users to interact directly with creators through creator profiles, which increases engagement. As of the quarter ended March 31, 2024, readers spent on average 26 minutes, 39 minutes, 28 minutes and 57 minutes per day on WEBTOON Korea, LINE MANGA, WEBTOON North America4 and Wattpad, respectively.

The majority of content on our platform is free to consume. Some content can only be accessed if a user pays. Users can pay by purchasing Coins, which can then be used to purchase content on our platform. Users can access this Paid Content in two different ways. A Fast Pass provides users with early access to upcoming episodes for ongoing series. A Daily Pass provides users with access to locked episodes, primarily from completed titles, meaning a series that is no longer publishing new episodes. Users receive a certain number of Daily Passes for free each day; additional Daily Passes and any Fast Passes must be purchased. Through the rewarding of Daily Passes and other targeted marketing campaigns, we provide engaged users with an opportunity to experience premium Paid Content for free, a process of habituation that induces their willingness to pay for content.

We also believe that we have a differentiated ability to advertise on our platform in a way that is additive to the user journey, rather than detracting. For example, one of our primary advertising products allows users to unlock Paid Content for free by viewing certain pre-roll ads. According to our April 2024 survey of our U.S. users, 80% of Fast Pass users are willing to watch an ad for an episode. That format has also already

 

4 

We measure users who read WEBTOON in the U.S. as a proxy to track time spent by users in North America.

 

6


Table of Contents

demonstrated widespread success in Japan, where over 50% of LINE MANGA users view pre-roll advertisements at least once each month. We also believe we have a differentiated ability to offer advertisers other ad formats such as display; according to our April 2024 survey of U.S. users, WEBTOON users are more than twice as likely to pay attention to ads on our platform as compared to Netflix, X, Reddit, or Snap.

Our Community

The power of WEBTOON lies in the interactions of the various stakeholders on our platform—user to user, user to creator and creator to creator. Users build fandoms around beloved content, meeting others with similar passions. This social aspect of our platform drives greater user engagement. Users also leave comments and reviews for creators—praise and feedback on stories—and support their favorite creators monetarily. For example, year to date as of December 2023, users posted an average of approximately one million comments every month on WEBTOON Korea and on WEBTOON English, and the creator profile offering on WEBTOON English saw a 55% increase in number of new posts year over year as of December 2023. Creators are inspired by this support and can incorporate feedback into future episodes. Finally, creators interact with each other, sharing best practices and advice. Altogether, this community powers a flywheel of engagement and creator success that has been the key to our success.

IP Adaptations

We enter into agreements with certain content creators who have stories with potential to become franchises across media formats. Using our multitude of proprietary data on which stories have resonated most with users in the past, we are able to identify and scale winning stories on our platform. We subsequently invest and scale such stories via adaptation into other formats, including films, streaming series, animation, video games, print books and merchandise. The majority of these adaptations are produced in partnership with third-party production companies in the form of a licensing agreement or in a limited preproduction capacity where we are paid a production fee for a service such as script development. The majority of production costs in these cases are borne by a third-party production partner. Occasionally, we may choose to rely entirely on our in-house production capability to produce the adaptation, if we determine the potential reward to be substantially in excess of the investment risk and the magnitude of the required investment to be manageable.

IP Adaptations have the benefit of extending the monetization potential of our content and increasing creator earnings. Our “One Story Multi-Use” strategy enables us to monetize a single story across multiple media formats and geographies. These adaptations also act as a source of organic user acquisition. Many users come to our platform after enjoying the adapted version of a story to discover the original web-comic or web-novel. For example, in the two months after we released Sweet Home on Netflix in December 2020, we saw a 30% increase in average monthly new users, compared to the two months prior to December 2020.

Over the past decade, over 100 different streaming series, films and animated series have been released based on WEBTOON stories, over 200 web-comics and web-novels have been published as print books, and more than 70 games have been released based on IP Adaptations. In the year ended December 31, 2023, we also sold over 1.6 million consumer product units based on our beloved characters.

A core of our strategy is identifying Korean-originated stories with global adaptation potential, and we have a track record of successful adaptations of Korean-originated stories for a global audience. For example, True Beauty was launched in Korea in April 2018; today, it is available in 10 languages, has generated 6.4 billion cumulative page views including more than 76% outside of Korea, and has been adapted into a TV series available on Netflix, Amazon Prime Video, and Apple TV. In addition, the following TV series based on Korean-originated stories have all reached number one on Netflix in the last few years: Mask Girl in August 2023, Bloodhounds in June 2023, All of Us Are Dead in February 2022, and Hellbound in November 2021. We have

 

7


Table of Contents

also successfully adapted Korean stories into film, such as Moon Man in July 2022, which was a top 10 grossing film in 2022; and into animation, such as Lookism in December 2022, which was a Netflix Top 10 series.

We have also seen early success in cultivating local talent in the U.S. and adapting these stories to a global audience. For example, Lore Olympus was originally published on CANVAS, our offering for amateur web-comics, in 2017 and generated 2.7 million cumulative page views in the first 8 months. By 2021, Lore Olympus was adapted into 7 languages and reached number one on our North America professional web-comic offering. The print book adaptation of the web-comic is a New York Times bestseller and is currently in the process of being adapted into an animated streaming series. North America content on Wattpad has also been adapted into TV series, film, and animation. For example, The Kissing Booth has been adapted into three seasons on Netflix with the second season garnering 66 million viewers in the first four weeks.

Foundational Technology and Creator Support

Our content enablement technology, artificial intelligence (“AI”) and data analytics capabilities and creator support services are key pillars of our platform. We facilitate and democratize storytelling through an end-to-end technology toolkit enabling success, from creative development to publishing to user acquisition and, ultimately, monetization. Access to various aspects of this toolkit depends on the needs of the individual creators, with additional support offered to professional creators. Our creator toolkit includes the following.

 

   

Content management tools: Enable amateur and professional creators of most of our offerings to publish content, manage their series and episodes, view an analytic dashboard and monitor their viewers’ comments.

 

   

Creation support tools: Products aimed at reducing the workload for creators to produce high quality content through artificial intelligence. For example, a new product in the testing phase, Shaper, allows creators to build 3D character models in order to change that character’s poses seamlessly and without the need to sketch each pose. Another product in the testing phase, Constella, then leverages AI to convert these 3D character models in various poses to natural looking 2D characters in the creator’s drawing style in the targeted poses.

 

   

Community tools: Enable an actively engaged social community that provides comments, praise and feedback on content. Includes the creator page, a dedicated individual webpage to facilitate creators’ communication with fans by publishing posts and holding votes.

 

   

Professional development: We supplement these tools with multilayered assistance, such as matching writers with illustrators and offering varying degrees of editorial support and translation services to both professional and amateur creators. We also promote the stories that we have identified as having high-potential for broader popularity throughout our platform, including cross-border into new geographies, and provide marketing and agency support regarding IP Adaptations.

We supplement our creators’ stories with an AI-powered recommendation engine that leverages our data advantage—deep, complex interest graphs mapping the type of content that different types of users enjoy the most. Finally, our community technology allows users to interact with their favorite creators, to influence the type of content being generated and to meet other users with similar interests.

Our technology benefits from our close relationship with NAVER as well. As a result of our relationship with NAVER, we have access to the learnings from their investments in artificial intelligence, such as user acquisition and advertising technology. At the same time, we combine these economies of scale in technology investments with the nimbleness and innovation of a high-growth startup.

 

8


Table of Contents

Our Industry

We believe that the market opportunity for our offerings benefits from strong secular shifts and tailwinds. These trends in our favor include the following:

Demand for High-Quality User-Generated Digital Content. User-generated content has been increasingly in demand. With the rise of social media, individuals around the world have been able to consume user-generated content at record pace. For example, 39% of weekly media hours consumed in the U.S. was user-generated content.5 Digital comics are a growing portion of that user-generated content. The comic market is shifting from large distributors producing paper comics to user-generated digital comics. Additionally, the online comic books market is expected by 2022 to outpace the overall comic book market through 2030.6

The Rise of Creators. Creators continue to meet demand for user-generated content. Creators span hobbyists to small business owners, and many are young and tech-savvy; 30% of 18-to 24-year-olds and 40% of 25-to 34-year-olds in the U.S. consider themselves content creators.7 By posting engaging and unique content, creators can both earn a living from their online presence and gain widespread notoriety. To date, creator tools have largely focused on photo and short-form video content. We believe there is growing demand for broader formats, including storytelling and web-comics specifically.

Korean Cultural Exports Gain Global Adoption. The Korean Wave, also known as Hallyu, is a decades-long trend of the popularization of Korean pop culture on a global scale. These Korean cultural exports began in the 1990s, gained traction in the 2000s and rapidly accelerated in the last decade-plus, with K-pop, K-dramas and other Korean cultural exports entering the global mainstream. For example, music group BTS was named International Federation of the Phonographic Industry Global Recording Artist of the Year for 2020 and 2021; BLACKPINK became the most-streamed girl group in the world on Spotify in March 2023; Squid Game is the most-watched Netflix streaming series of all time; and Parasite won four Oscars, including Best Picture. The new format of web-comics also builds on a rich history of visual storytelling in Korea, having its origins in manhwa, Korean comics.

The Rise of Global Content Franchises. Franchises are evergreen intellectual property that can be continuously adapted in multiple ways, and they have become increasingly popular and lucrative in recent years. For example, in 2022, nine out of the top ten grossing films globally were adaptations of existing franchise content or sequels, and three were part of the Marvel Cinematic Universe. Technology platforms have introduced new models of promoting viral content and driving global fandoms, with millions of individuals following popular creators such as Mr. Beast and Charlie D’Amelio, among others. For example, in 2022, the top 10 creators on Roblox each earned $23 million from selling original games and in-app purchases. Unlike traditional media models that require significant upfront investment to develop content, technology platforms have democratized the creation of content across content types, allowing any individual to develop high-quality premium content and distribute to a scaled audience. This new model of intellectual property creation also mitigates the traditional risk of whether a work will be a “hit” or “miss” that is inherent in traditional media production because unlike traditional media where producers and distributors have limited real-time audience feedback prior to release, our creators can receive user feedback real time as they develop their works, engage with and respond to fans and adapt and invest to further expand engagement and popularity.

Gen Z Purchasing Power on the Rise. Gen Z individuals increasingly desire short-form, user-generated content and are eager to consume cross-cultural content. Gen Z globally had over $360 billion in estimated

 

5 

Content metrics are from a study by the Consumer Technology Association.

6 

Analysis is from a report by Grand View Research.

7 

Metrics are from a report by HubSpot.

 

9


Table of Contents

disposable income in 2022, which has more than doubled compared to three years ago.8 As Gen Z consumers enter the workforce and begin to have higher disposable incomes, their propensity to pay for content will likely increase.

Our Market Opportunity

We see a market opportunity of approximately $130 billion in Paid Content, $680 billion in Advertising and $900 billion in our IP Adaptations businesses.

Paid Content

We have a substantial market opportunity in growing our Paid Content revenue by attracting more users, driving higher engagement and paying ratio, and increasing our average paid content revenue per paying user (ARPPU).

We view our Paid Content market opportunity in terms of our Core Geographies and All Other Geographies (excluding China).

Our Paid Content market opportunity in Core Geographies includes purchases by users for access to our content within Korea, Japan and North America (defined as the U.S. and Canada), our current primary-focus geographies. While we have a global presence with viral content and organic user traffic in over 150 countries, we primarily monetize in our Core Geographies. All Other Geographies include the Rest of World (excluding China).

Given the regional differences in market maturity and demographics, we estimate Paid Content market opportunity for each region separately. To calculate our market opportunity, we use 2023 population figures from Euromonitor, combined with our own estimates for penetration, conversion to paying users and average revenue per paying user for each region.

 

   

Penetration. We have sized our Paid Content market opportunity based on a target penetration level of 50% of the overall population in Korea, Japan, North America and All Other Geographies (excluding China). Our target penetration is based on our current penetration in Korea, our largest and most mature market.

 

   

Paying Ratio. To size our Paid Content market opportunity, we assume that we can reach 40% paying ratio in all geographies.

 

   

Annual Paid Content Average Revenue per Monthly Paying User (annual ARPPU). We have sized our Paid Content market opportunity assuming a potential annual ARPPU for Korea, North America, and All Other Geographies in line with Korea’s ARPPU. In Japan, we assume that our average total ARPPU does not change.

Our Paid Content market opportunity implied by our analysis in our Core Geographies is $15 billion, split across $1 billion in Korea, $7 billion in Japan, and $7 billion in North America.

Because of the nascency of the web-comic and web-novel market in North America and the strategic importance of that region, we also engaged a third party, Euromonitor, to estimate the long-term total addressable market (TAM) in that region. According to Euromonitor, the TAM for web-comics and web-novels Paid Content in North America is projected to reach $10.5 billion by 2028, implying significant upside to the opportunity size we estimate internally. Based on survey results, Euromonitor estimates a future annual North America Paid

 

8 

Data is from Gen Z Planet.

 

10


Table of Contents

Content ARPPU of $203 per paying user, above our current Korea Paid Content ARPPU of $95 and North America Paid Content ARPPU of $87. Using Euromonitor’s estimates, based on our 2023 revenue in North America, we are less than 1% penetrated in our North America TAM today with a significant runway ahead.9

Our Paid Content market opportunity implied by our analysis is $130 billion, including $115 billion in All Other Geographies (excluding China).

Advertising

Our high intent, sought after user base attracts advertisers. As we continue to invest in enhanced advertising products and capabilities, we believe that we will be able to increase advertising revenue as we continue to innovate our advertising products and capture an increasing portion of the $680 billion digital advertising market globally. For example, according to our April 2024 survey of U.S. users, 80% of our users prefer to watch ads to unlock paid episodes and our users are 2x more likely to pay attention to ads compared to users on Netflix, X, Reddit and Snap.

IP Adaptations

Including all web-comic and web-novel content but excluding Wattpad, we had approximately 725 thousand total titles on our platform as of December 31, 2023. Out of these, over 900 titles were adapted into other content formats outside of web-comic and web-novel as of March 31, 2024, representing less than 1% of our content library and demonstrating significant runway for future adaptations out of our content library.

We believe that as our library continues to grow, and we continue to invest in the capabilities to produce IP Adaptations either in-house or with third-party partners, we can capture an increasing portion of the over $900 billion global entertainment industry.

Our Strengths

We believe that our key strengths include the following:

Leading Global Storytelling Platform. We pioneered a new form of globally adaptable storytelling that is digitally native, highly engaging and user-generated. We enjoy leading web-comic market positions as of December 31, 2023, in all of our major geographies, including Korea (#1), the U.S. (#1) and Japan (#1), and are ranked first in multiple geographies throughout Southeast Asia and Europe in terms of monthly active users.10 In fact, according to our April 2024 survey of our U.S. users, 77% of respondents agreed that WEBTOON has content they cannot find anywhere else, and 97% agreed that WEBTOON is entertaining and fun, achieving a higher score than other platforms including Roblox, Netflix and TikTok. Our technology stack and user and creator products are highly scalable across markets, and our newer markets are able to benefit from the content and platform infrastructure we have invested in Korea and Japan. Our stories are also critically acclaimed and globally successful. Additionally, our “One Story Multi-Use” strategy enables us to monetize a single story across multiple media formats and geographies. For example, since 2020, Sweet Home, Hellbound, All of Us Are Dead and Bloodhounds have all ranked number one on Netflix. However, we may not be always able to effectively identify popular content on our platform with adaptation potential, acquire a broad range of intellectual property rights of popular content for adaptation, or find appropriate adaptation partners who are willing to source or produce our content.

 

9 

Euromonitor estimates from desk research, trade interviews with leading industry stakeholders in North America, and including a tailored consumer survey conducted in April and May 2024 in USA and Canada (N=2000).

10 

Data is from data.ai (a Sensor Tower company). The monthly active users number from data.ai (a Sensor Tower company) only includes smartphones.

 

11


Table of Contents

Creator Platform of Choice. We provide creators with access to high-intent audiences around the world who are passionate and engaged with web-comic and web-novel content. We provide creators with the essential resources for success, including tools to create, manage and monetize their content as well as interact directly with their fans. We also provide creators with multiple monetization opportunities, including revenue sharing from user purchases of Paid Content, advertising and IP Adaptations, because if we fail to properly support and incentivize our creators, they may choose to develop content on other competing interactive entertainment platforms. In the year ended December 31, 2023, professional creators earned on average $48 thousand per creator, with top 100 creators earning on average $1 million per creator and 483 creators earning over $100 thousand. Our deep creator loyalty is evidenced by the fact that over the last three years, we retained 100% of professional creators who create web-comics on WEBTOON Korea and WEBTOON English.

Efficient Content Creation Engine. Our evergreen content creation is powered by 24 million amateur creators and approximately 13 thousand professional creators as of December 31, 2023, with 124 thousand episodes published on our platform each day in the quarter ended December 31, 2023. Because our content is bite-sized, this empowers creators to experiment and innovate, and allows them to receive feedback directly and in real-time, resulting in a high velocity of new content creation. Although content localization is challenging and requires investment of significant resources, we have a proven track record of content localization, enabling us to take content from one geography and leverage it to build an audience in a new geography and drive cross-border engagement.

Diversified Business Model. We generate revenue in multiple ways. In the year ended December 31, 2023, 80.2% of our revenue was from Paid Content, 11.3% was from advertising and 8.4% was from IP Adaptations.

Even though we are in the early stage of our adaptation business and have a limited experience in generating substantial revenues from such adaptations, we believe we can further diversify our monetization strategy through IP Adaptations.

Attractive, Engaged, Global User Base. We have a scaled and global user base of approximately 170 million monthly active users in more than 150 different countries as of the quarter ended March 31, 2024. Our user base is also highly engaged: in the quarter ended March 31, 2024, readers spent on average 26 minutes, 39 minutes, 28 minutes and 57 minutes per day on WEBTOON Korea, LINE MANGA, WEBTOON North America and Wattpad, respectively, and the average user spent $11.5 on Paid Content per month in the quarter ended March 31, 2024. While we may be unable to maintain or increase our user base if we fail to anticipate, understand or respond to market trends and rapidly evolving user preferences, particularly among the younger generation, our current user base is young, balanced from a gender diversity perspective, digitally native and highly indexed to Gen Z and millennials.

Purpose-Built Proprietary Technology. We have developed a purpose-built technology platform that supports every aspect of our business, although certain new features have not fully launched yet. We benefit from NAVER’s investments in research and development, combining these economies of scale in technology investments with the nimbleness and innovation of a high-growth startup.

Passionate Founder-Led Management Team. Our team is inspired by our love of storytelling and the opportunity to empower creators. Our leadership team is composed of executives with proven track records.

Our Growth Strategies

Our growth strategies include the following:

User Growth Strategies

Improve content localization in each of our core regions. In North America, we started to build our content library initially by importing web-comic titles available in Korean and translating them into English as well as

 

12


Table of Contents

working to cultivate a local creator base to drive original local content as a user acquisition, engagement and monetization strategy. In Japan, our strategy has focused on adapting traditional offline manga into a digitized format to attract legacy manga consumers, and then converting those digitized manga consumers into WEBTOON-style web-comic consumers. We are also prioritizing growing a local creator ecosystem in Japan, as a large portion of web-comics in Japan currently are sourced from Korea. As we seek to scale in new markets, we plan to continue to deploy these proven content localization strategies to expand the WEBTOON user base.

Acquire new users through diverse and differentiated channels. We plan to grow our user base globally both organically through word-of-mouth on hit titles and IP Adaptations and through paid marketing including brand marketing campaigns and performance marketing. We also reach new creator communities and users through collaborations with popular platforms, such as Discord, Patreon, DC Comics and BTS’s HYBE Entertainment. In the near-term, our priority market for acquiring new users is North America, given the massive market opportunity there and the relatively established familiarity today with web-comics in Korea and Japan.

Increase engagement by continually improving our AI-based recommendation engine and launching new community and gamified features that have the potential to go viral. Our proven and disciplined strategy includes developing and testing new features in Korea first, and then deploying those features globally in other regions.

Expand to new geographies through targeted launches or acquisitions. Our criteria are based on the size of local user base, potential of local creator base, consumer purchasing power, familiarity with similar content formats and overlapping language. For example, the acquisition of Wattpad helped us reach a global and primarily English-speaking web-novel user base, which we also expect to be able to convert into web-comic users.

Creator Growth Strategies

Increase creator earnings We plan to continue to attract the best creator talent by continuing to provide compelling economic opportunities as well as by extending the global user reach for our creators. In order to grow creator earnings, we plan to expand our audience, promote cross-border consumption of existing titles and increase opportunities for creators to monetize through our advertising and IP Adaptations businesses.

Cultivate fandoms by assisting high-potential creators with professional production support and launching awareness campaigns, including in-app promotions, creator branding and social marketing. Our ability to adapt web-comic and web-novel stories into diverse media formats helps promote these fandoms by allowing users to explore beloved stories in multiple formats, deepening creator engagement with their fans, and prolonging the lifespan of high-performing stories both on and off our platform.

Incubate local creators, especially in newer geographies such as Japan and Rest of World. Our growing presence and brand recognition in these regions, including through highly popular IP adaptations, naturally attracts local talent. We also supplement this growth with targeted actions aimed at bringing local creators onto our platform. For example, we organize an annual web-comic contest for amateur creators in certain geographies, such as the U.S., providing monetary rewards and the opportunity to debut as a featured creator.

Platform Growth Strategies

Increase Paid Content monetization by improving conversion, optimizing the quantity of content subject to a paywall, optimizing pricing schemes and finding new monetization models. We also intend to increase Paid Content monetization by adding additional features that strengthen the community aspects of our platform and deepen the interactions between users and creators.

 

13


Table of Contents

Accelerate the growth of our advertising business by enhancing our advertising products and reaching new advertisers. We plan to continue to invest in enhancing and diversifying our advertiser product offerings, including engaging and interactive advertising formats, as well as more targeted ad products leveraging the data we have. We have seen significant success with our advertising business in Japan and plan to accelerate the growth of our Advertising revenue in North America. In fact, according to our April 2024 survey of U.S. users, 80% of Fast Pass users are willing to watch an ad for an episode – indicative of our opportunity to grow our Advertising revenue without detracting from the user experience. In North America, we have historically focused less on growing our advertising business and instead focused on building the core WEBTOON platform around Paid Content. Now that we have established a large and engaged user base in North America, we expect to capitalize on that audience, through both Wattpad and WEBTOON. We also expect to build local advertising sales teams to bring more diverse advertisers onto our platform.

Further bolster the success of our IP adaptations business by continuing to identify potential stories for adaptation into other media formats, such as film, streaming series, merchandise, games and print books. We are in early innings of our IP Adaptation business with less than 1% of our content library having been adapted. Today, we are focused on the “One Story Multi-Use” strategy by leveraging data to identify potential stories for adaptation into various formats such as film, streaming series, merchandise, games, and print books. Historically, we have taken a modest approach to direct production investment. Over the next two to three years, our roadmap incorporates disciplined capital deployment in greater rich media production and distribution capabilities for select opportunities where we see the greatest potential to build franchises and deliver high risk-adjusted returns. Through these initiatives, we believe we can build the next generation of global entertainment franchises on WEBTOON.

Continue to invest in our foundational technologies, especially in artificial intelligence. Technology powers our entire platform, from our recommendation engine to content generation capabilities for creators to anti-piracy. We have a unique technological advantage based on our utilization of machine learning and the diverse data collected across our platform. Our artificial intelligence and data analytics capabilities help us improve the user experience through better curation and personalization as well as the creator experience through products aimed at enhancing creators’ productivity and creativity.

Selectively pursue acquisitions where we see an opportunity to acquire a differentiated technology, brand or creator or user community.

Our Relationship with NAVER

Founded in 1999, NAVER is Korea’s largest internet company and its oldest surviving start-up, having grown into a global information and communications technology player. NAVER operates Korea’s No. 1 search engine and top 2 e-commerce platform, in addition to being a leading provider of fintech services, digital content and cloud services, with global reach. NAVER fosters a culture of “founder-type leaders,” which in turn supports the launch of innovative mobile applications created by NAVER employees, including LINE (Japan’s number one messaging app), ZEPETO (a metaverse platform) and WEBTOON. NAVER’s sustained research and development investment into AI, robotics and mobility, among other capabilities, propel NAVER forward as a trusted and innovative technology platform in the global market.

From WEBTOON’s inception as the brainchild of Junkoo Kim during his time as a search engineer at NAVER, our platform has benefitted from our connectivity. We have fostered a close, symbiotic partnership, complementing each other within the broader NAVER network, which will continue to support WEBTOON’s success across multiple fronts. Through our relationship, we have been able to leverage learnings from NAVER’s significant research and development investments into platform technologies, user engagement strategies and advertising capabilities, among other areas. For example, as we continue to build our artificial intelligence

 

14


Table of Contents

capabilities to recommend new content to users or to support creators by automating illustrations, we leverage NAVER’s fundamental technologies and data advantage.

NAVER has also supported strategic opportunities in the digital content industry, such as NAVER’s 2021 acquisition of Wattpad, which had been our sister entity until it was acquired by us from NAVER in June 2023, to help further strengthen our storytelling ecosystem, foster the expansion of our user base into new geographies and create an even stronger foundation to fund an aspiring generation of creators. We will continue to capitalize on our connectivity with NAVER to fuel our growth, combining our collective scale with the nimbleness and innovation of a high-growth startup to provide an open platform for anyone with a story to tell.

Summary of Risk Factors

An investment in shares of our common stock involves risks and uncertainties. The following list contains a summary of some, but not all, of these risks and uncertainties. You should consider the factors listed below and other factors, which are discussed in more detail in the section of this prospectus entitled “Risk Factors,” before making an investment decision to purchase shares of our common stock. If risks or uncertainties materialize, our business, results of operations, financial condition or prospectus could be adversely affected, potentially in a material way which could result in a partial or complete loss of your investment. Such risks include, but are not limited to, the following:

Risks Related to Our Business, Industry and Operations

 

   

We have experienced rapid growth in recent periods, and our historical growth rates may not be indicative of our future performance.

 

   

Our growth depends on our ability to attract and empower creators and our ability to properly support and incentivize our creators to create compelling, engaging and interactive content.

 

   

Our growth depends on our ability to retain, attract and engage with our users, and our ability to anticipate, understand and respond appropriately to market trends and rapidly changing user preferences in a timely manner.

 

   

If we fail to retain or increase our paying users or if we fail to maintain or continue to increase our paying ratio, our business, financial condition or results of operations could be adversely affected.

 

   

We operate in highly competitive markets, and we face significant competition to attract and empower our creators and users.

 

   

Maintaining and enhancing the market recognition and reputation of our brands is a critical component of our relationship with creators, users and other third parties.

 

   

Our growth depends on our ability to innovate and expand our advertising business and to develop effective advertising products.

 

   

We intend to continue to diversify our monetization strategy and increase revenues from IP Adaptations, which may not be successful.

 

   

We intend to continue to expand our presence in existing and into new geographic markets and execute upon our growth initiatives, and our international expansion efforts may not be successful.

 

   

We face a variety of risks associated with conducting business around the world, and these risks will increase as we continue to expand our presence into new geographic markets.

 

   

Our future growth depends on our ability to continue innovating our platform to offer attractive features and safe and civil experiences for our creators and users.

 

15


Table of Contents
   

We depend on effectively operating with mobile operating systems, hardware, technologies, products, standards and networks that we do not control, and changes to any of these or our platform could adversely affect our user retention, growth, engagement and monetization.

 

   

We have a history of net losses, and we anticipate increasing expenses in the future, and we may not achieve or maintain profitability.

 

   

If we fail to control our content-related costs, the expenses we incur may exceed the increase in revenues.

 

   

The future success of our business relies heavily on our sales and marketing efforts, and if we fail to maintain sales and marketing efficiency, the marketing expenses we incur as we grow may exceed the increase in revenues.

Risks Related to Government Regulation and Legal Proceedings

 

   

We are, and could become, subject to significant legal proceedings and regulatory investigations that may result in significant expenses, fines and reputational damage.

 

   

The success of our growth strategy depends on our ability to provide a safe online environment for children.

 

   

We are subject to complex and evolving federal, state and international laws, regulations, rules, standards and contractual obligations regarding privacy, data protection and cybersecurity, which could result in investigations, claims, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could adversely affect our business.

Risks Related to Intellectual Property

 

   

Claims by others that we infringe, misappropriate or otherwise violate their intellectual property rights through the activities of our creators or users or the content on our platform could subject us to liability.

 

   

Our defenses to claims of infringement, misappropriation or other violations of third-party intellectual property rights are costly and may not be successful.

 

   

Failure to obtain, maintain, protect and enforce our proprietary and intellectual property rights could adversely affect our business.

Risks Related to This Offering and Ownership of our Common Stock

 

   

NAVER controls a significant percentage of our voting power and may have interests that conflict with the interests of other stockholders.

 

   

Following the completion of this offering, we will be a “controlled company” and, as a result, will qualify for exemptions from certain corporate governance requirements.

 

   

Taking advantage of the reduced disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive to investors.

 

   

We have identified certain material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we experience additional material weaknesses or otherwise are unable to implement and maintain effective internal control over financial reporting in the future, investors could lose confidence in the accuracy and completeness of our financial reports and the market price of shares of our common stock could be adversely affected.

 

16


Table of Contents

Channels for Disclosure of Information

Following the closing of this offering, we intend to announce material information to the public through filings with the SEC, the investor relations page on our website, press releases, public conference calls and public webcasts. The information disclosed through the foregoing channels could be deemed to be material information. As such, we encourage investors, the media and others to follow the channels listed above and to review the information disclosed through such channels. Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.

Emerging Growth Company

When we submitted the draft registration statement of which this prospectus forms a part, we qualified as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). An emerging growth company may take advantage of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. In particular, an emerging growth company is not required to:

 

   

provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);

 

   

provide more than two years of audited financial statements and related management’s discussion and analysis of financial condition and results of operations;

 

   

comply with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer;

 

   

provide certain disclosures regarding executive compensation required of larger public companies or hold stockholder advisory votes on executive compensation required by the Dodd-Frank Wall Street Reform and Consumer Protection Act; or

 

   

obtain stockholder approval of any golden parachute payments not previously approved.

In addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for adopting new or revised financial accounting standards. We intend to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act until we no longer qualify as an emerging growth company. Our election to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards. See “Risk Factors—Risks Related to This Offering and Ownership of our Common Stock—Taking advantage of the reduced disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive to investors.”

We ceased to be an emerging growth company as of the end of fiscal year 2023 because our annual gross revenues exceeded $1.235 billion for that fiscal year. However, we will continue to be treated as an emerging growth company for disclosure purposes in this prospectus until the earlier of the completion of our initial public offering or the end of the one-year period beginning on December 31, 2023, and we may choose to take advantage of some but not all of these reduced reporting burdens for purposes of the prospectus.

 

17


Table of Contents

Controlled Company Exemption

After the completion of this offering, NAVER will beneficially own approximately    % of our total outstanding shares of common stock and voting power for the election of directors (or    % if the underwriters exercise in full their option to purchase additional shares of common stock to cover over-allotments). As a result, upon completion of this offering, we will be a “controlled company” as defined under the corporate governance rules of Nasdaq. We intend to avail ourselves of the “controlled company” exemption under the rules of Nasdaq, including exemptions from certain of the corporate governance listing requirements. A controlled company is not required to have a majority of independent directors or form an independent compensation or nominating and corporate governance committee. As a controlled company, we will remain subject to rules that require us to have an audit committee composed entirely of independent directors, subject to the “phase-in” rules applicable to newly public companies. Under the “phase-in” rules, we are required to have at least three independent directors on our audit committee within one year of the effectiveness of the registration statement of which this prospectus forms a part. We expect to have independent directors upon the completion of this offering. Please read “Management—Controlled Company Exemption” and “Principal Stockholders.”

 

18


Table of Contents

Corporate Structure

The following diagram summarizes our organizational structure and ownership after giving effect to this offering, with the percentages of ownership reflected assuming no exercise by the underwriters of their option to purchase additional shares of common stock to cover over-allotments. This diagram is for illustrative purposes only and does not represent all legal entities and subsidiaries of the Company.

 

 

LOGO

 

(1)

WEBTOON Entertainment Inc. operates the U.S. operation of WEBTOON, our global offering.

(2)

NAVER WEBTOON Ltd. operates our offerings WEBTOON, WEBTOON Korea and NAVER SERIES.

(3)

LINE Digital Frontier Corporation (“LDF”) operates our offering LINE MANGA.

(4)

Wattpad Corporation operates our offering Wattpad.

(5)

Munpia Inc. operates our offering Munpia.

(6)

Studio N Corporation is one of our main IP Adaptations businesses, along with Wattpad WEBTOON Studios.

(7)

eBIJ operates our offering eBookJapan and is expected to merge with LDF in the third quarter of 2024.

 

19


Table of Contents

Corporate Information

WEBTOON is a Delaware corporation and was incorporated in 2016. Our principal executive offices are located at 5700 Wilshire Blvd, Suite 220, Los Angeles, CA 90036, and our telephone number at this address is (323) 424-3795. Our website is https://about.webtoon.com. The information contained on, or accessible through, our website is not a part of, and is not incorporated into, this prospectus. We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website.

 

20


Table of Contents

THE OFFERING

 

Common stock offered by us in this offering

   shares

 

Underwriters’ option to purchase additional shares of common stock to cover over-allotments

   shares

 

Common stock to be outstanding upon completion of this offering

   shares (    shares if the underwriters exercise in full their option to purchase additional shares of our common stock to cover over-allotments).

 

Use of proceeds

We expect to receive approximately $    million based on an initial public offering price of $    per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use the net proceeds from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. See the section titled “Use of Proceeds” for more information.

 

Dividend policy

We currently do not anticipate paying any cash dividends after this offering and for the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used for working capital, to support our operations and to finance the growth and development of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including, restrictions in our future debt instruments, our future earnings, capital requirements, financial condition, prospects and applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits. See “Dividend Policy.”

 

Emerging growth company

We are treated as an “emerging growth company” as that term is used in the JOBS Act for certain purposes until the earlier of the completion of this offering or the end of the one-year period beginning on December 31, 2023 and, as such, we have elected to take advantage of certain reduced public company reporting requirements for this prospectus. See “Risk Factors” and “Prospectus Summary—Emerging Growth Company.”

 

Controlled company

After the completion of this offering, NAVER will beneficially own approximately  % of our total outstanding shares of common stock and voting power for the election of directors (or    % if the underwriters exercise in full their option to purchase additional shares of common stock to cover over-allotments). As a result, upon

 

21


Table of Contents

completion of this offering, we will be a “controlled company” as defined under the corporate governance rules of Nasdaq. We intend to avail ourselves of the “controlled company” exemption under the rules of Nasdaq, including exemptions from certain of the corporate governance listing requirements. See “Management—Controlled Company Exemption.”

 

Listing and symbol

We have applied to list our common stock on the Nasdaq under the symbol “WBTN.”

 

Risk factors

You should read the section of this prospectus entitled “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider carefully before making an investment decision to purchase shares of our common stock.

The historical audited consolidated financial statements and historical unaudited condensed consolidated financial statements and the related notes to those statements included elsewhere in this prospectus have not been adjusted for the Stock Split that will be effectuated after the effectiveness of the registration statement of which this prospectus forms a part and before the completion of this offering. Unless otherwise indicated, all other share and per share data in this prospectus have been retroactively adjusted, where applicable, to reflect the Stock Split as if it had occurred at the beginning of the earliest period presented.

Unless otherwise indicated or the context otherwise requires, references to the number and percentage of shares of our common stock to be outstanding upon completion of this offering are based on    shares of our common stock outstanding upon completion of this offering.

Unless otherwise indicated or the context otherwise requires, the information presented in this prospectus:

 

   

gives effect to our amended and restated certificate of incorporation (the “Amended Charter”) and amended and restated bylaws (the “Amended Bylaws”), which will become effective immediately prior to the consummation of this offering;

 

   

gives effect (except for historical financial information) to the Stock Split;

 

   

assumes an initial public offering price of $    per share of our common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus;

 

   

assumes no exercise of the underwriters’ option to purchase additional shares of our common stock to cover over-allotments;

 

   

excludes the issuance of up to    % of the shares of our common stock outstanding at the closing of this offering (on a fully diluted basis) that we expect to reserve for issuance under our proposed 2024 Omnibus Incentive Plan (which we refer to as the “2024 Plan”);

 

   

excludes    shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of    , with a weighted-average exercise price of $    per share; and

 

   

excludes     shares of our common stock underlying restricted stock units outstanding as of     .

 

22


Table of Contents

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following table summarizes our consolidated financial and other data. We have derived the summary historical consolidated statements of operations data and consolidated statements of cash flows data for the years ended December 31, 2023 and December 31, 2022, and the summary historical consolidated balance sheet data as of December 31, 2023 and December 31, 2022, from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary historical consolidated statements of operations data and summary consolidated statements of cash flows data for the three months ended March 31, 2024 and 2023 and the summary historical consolidated balance sheet data as of March 31, 2024 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated financial data below is only a summary and should be read in conjunction with the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on the same basis as our audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal, recurring nature that are necessary for the fair statement of the results of operations for the period. The summary historical consolidated financial data may not necessarily reflect what our financial condition, results of operations or cash flows may be in the future.

Consolidated Statements of Operations

 

     Three Months Ended
March 31,
     Year Ended
December 31,
 
(in thousands of USD, except per share data)    2024      2023      2023      2022  

Revenue

   $ 326,744      $ 310,257      $ 1,282,748      $ 1,079,388  

Cost of revenue

     (244,385      (244,407      (987,258      (806,377

Marketing

     (19,478      (29,244      (121,086      (180,002

General and administrative expenses

     (48,693      (56,369      (210,762      (207,728
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income (loss)

     14,188        (19,763      (36,358      (114,719
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest income

     1,235        357        3,009        1,166  

Interest expense

     (33      (23      (79      (844

Impairment losses on goodwill

     —         —         (63,412      —   

Loss on equity method investments, net

     (1,052      (524      (12,339      (4,694

Other income (loss), net

     (1,437      4,038        (23,574      937  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income tax

     12,901        (15,915      (132,753      (118,154
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax expense

     (6,668      (2,377      (12,006      (14,369
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ 6,233      $ (18,292    $ (144,759    $ (132,523
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings (loss) per share:

           

Basic

   $ 1.73      $ (4.80    $ (31.85    $ (36.58

Diluted

   $ 1.73      $ (4.80    $ (31.85    $ (36.59

Pro forma earnings (loss) per share(1):

           

Basic

   $        $        $        $    

Diluted

   $        $        $        $    

 

(1)

We compute pro forma earnings (loss) per share as if the Stock Split had occurred at the beginning of the earliest period presented. Pro forma basic earnings (loss) per share is computed using net income (loss) divided by the weighted average number of shares outstanding during the period. Weighted average number of shares outstanding includes     shares related to the Stock Split. Pro forma diluted earnings (loss) per share is computed using the weighted average number of shares and the effect of potentially dilutive equity awards outstanding during the period.

 

23


Table of Contents

Consolidated Balance Sheets

 

     As of March 31,      As of December 31,   
(in thousands of USD)    2024      2023      2022  

Cash and cash equivalents

   $ 218,670      $ 231,745      $ 279,709  

Total current assets

     486,050        492,827        555,437  

Total assets

     1,741,367        1,776,605        2,020,591  

Total liabilities

     418,625        429,129        505,125  

Redeemable non-controlling interest in subsidiary

     41,525        41,429        46,964  

Total equity

     1,281,217        1,306,047        1,468,502  

Consolidated Statements of Cash Flows

 

     Three Months Ended
March 31,
     Year Ended
December 31,
 
(in thousands of USD)    2024      2023      2023      2022  

Net cash provided by (used in) operating activities

   $ 23,856      $ (24,072    $ 14,804      $ (140,608

Net cash used in investing activities

     (27,816      (29,924      (51,982      (50,704

Net cash provided by (used in) financing activities

     (857      (7,633      (6,499      350,342  

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP financial measures are useful in evaluating and comparing our financial and operational performance over multiple periods, identifying trends affecting our business, formulating business plans and making strategic decisions.

 

     Three Months Ended
March 31,
    Year Ended
December 31,
 
(in thousands of USD, except percentages)    2024     2023     2023     2022  

EBITDA(a)

   $ 21,969     $ (6,418   $ (94,314   $ (82,575

Adjusted EBITDA(a)

   $ 22,827     $ (2,629   $ 11,663     $ (78,216

Adjusted EBITDA Margin(a)

     7.0     (0.8 )%      0.9     (7.2 )% 

Revenue on a constant currency basis(b)

   $ 353,706       —      $ 1,316,813       —   

Revenue growth on a constant currency basis(b)

     14.0     —        22.0     —   

 

(a)

We define EBITDA as net income (loss) before interest expense, income tax expense and depreciation and amortization. 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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for information regarding our use of these non-GAAP financial measures, and for a reconciliation of each of these non-GAAP financial measures to its most directly comparable financial measure calculated in accordance with GAAP.

 

24


Table of Contents

The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA for each of the periods presented.

 

     Three Months Ended
March 31,
    Year Ended
December 31, 
 
(in thousands of USD, except percentages)    2024     2023     2023     2022  

Revenue

   $ 326,744     $ 310,257     $ 1,282,748     $ 1,079,388  

Net income (loss)

   $ 6,233     $ (18,292   $ (144,759   $ (132,523

Interest expense

     33       23       79       844  

Income tax expense

     6,668       2,377       12,006       14,369  

Depreciation and amortization

     9,035       9,475       38,359       34,735  
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA(6)

   $ 21,969     $ (6,418   $ (94,314   $ (82,575
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss on equity method investments, net(1)

     1,052       524       12,339       4,694  

(Gain) loss on fair value instruments, net(2)

     (3,371     (246     22,677       190  

Impairment losses on goodwill(3)

     —        —        63,412       —   

Stock-based compensation expense(4)

     836       2,329       3,220       (525

Restructuring and IPO-related costs(5)

     2,340       1,182       4,330       —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(6)

   $ 22,827     $ (2,629   $ 11,663     $ (78,216
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) margin

     1.9     (5.9 )%      (11.3 )%      (12.3 )% 

Adjusted EBITDA Margin

     7.0     (0.8 )%      0.9     (7.2 )% 

 

(1)

Represents our proportionate share of recognized losses associated with our investments accounted for using the equity method. See Note 18. Equity Method Investments in the accompanying notes to our audited consolidated financial statements and Note 22. Subsequent Events in the accompanying notes to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

(2)

Represents unrealized net (gain) 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.

(3)

Represents impairment losses on goodwill for Wattpad WEBTOON Studios, Munpia, and Jakga Company Inc. (“Jakga”) of $6.1 million, $25.6 million, and $31.7 million, respectively, for the year ended December 31, 2023.

(4)

Represents non-cash stock-based compensation expense related to WEBTOON’s equity incentive plan and stock-based compensation plans of NAVER, Munpia and LOCUS Inc (“LOCUS”).

(5)

Represents non-recurring expenses that we do not consider representative of the operating performance of the business. For the year ended December 31, 2023, other costs are comprised of the following expenses associated with IPO readiness activities: (i) financial advisory fee of approximately $0.9 million, (ii) consulting fee of approximately $1.5 million, and (iii) severance fees of approximately $1.9 million and $0.2 million, respectively, for the year ended December 31, 2023 and the three months ended December 31, 2023, paid to certain former officers and employees of Wattpad, Wattpad WEBTOON Studios and WEBTOON. For the three months ended March 31, 2024, such costs were comprised of severance fees of approximately $2.3 million paid to certain former officers and employees of Wattpad, Wattpad WEBTOON Studios and WEBTOON.

(6)

Totals may not foot due to rounding.

 

(b)

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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for information regarding our use of these non-GAAP financial measures, and for a reconciliation of each of these non-GAAP financial measures to its most directly comparable financial measure calculated in accordance with GAAP.

 

25


Table of Contents

RISK FACTORS

An investment in shares of our common stock involves risks and uncertainties. In addition to the other information in this prospectus, you should carefully consider the factors below before making an investment decision to purchase shares of our common stock. We seek to identify, manage and mitigate risks to our business, but risks and uncertainties are difficult to predict, and many are outside of our control and therefore cannot be eliminated. You should be aware that it is not possible to predict or identify all of these factors and that the following is not meant to be a complete discussion of all potential risks or uncertainties. If known or unknown risks or uncertainties materialize, our business, financial condition, results of operations, cash flows or prospects could be adversely affected, potentially in a material way, which could result in a partial or complete loss of your investment.

Risks Related to Our Business, Industry and Operations

We have experienced rapid growth in recent periods, and our historical growth rates may not be indicative of our future performance.

We have experienced rapid growth in our business and revenue in recent periods. You should not rely on our historical growth rates as an indication of our future performance. We anticipate that further growth of our business will be required to address any significant growth in our user base and creators and to take advantage of favorable market opportunities. Any future growth will likely place significant demands on our managerial, operational, administrative and financial resources. If we are not able to respond effectively to new or increased demands that arise because of our growth, or, if in responding, our management is materially distracted from current operations, our business could be adversely affected. In addition, if we do not have sufficient breadth and depth of the content necessary to satisfy increased demand arising from growth in our user base, our user satisfaction may also be adversely affected.

Our growth may decline in the future as a result of a variety of factors, including slowing demand for our platform, insufficient growth in the number of creators and users that use our platform, increased competition, insufficient growth of our overall market, our inability to continue to capitalize on growth opportunities, increasing regulatory costs and the maturation of our business. We believe that the growth of our business depends on a number of factors, including our ability to:

 

   

continue to attract and empower creators to create engaging content;

 

   

attract users and strengthen our brands;

 

   

increase engagement with users and strengthen our community;

 

   

increase our paying ratio and strengthen our monetization capability;

 

   

continue to innovate and expand our advertising business;

 

   

increase revenues from our IP Adaptations with increasing bargaining power vis-a-vis third-party intellectual property adaptation partners (e.g., studios, publishers, financiers, distributors, producers and potential buyers);

 

   

expand our presence into new geographic markets;

 

   

continue to innovate our platform; and

 

   

maintain sales and marketing efficiency.

We may not successfully accomplish any of these objectives, or such changes may not be favorable to us, and, as a result, it is difficult for us to forecast our future results of operations. If the assumptions that we use to plan our business are incorrect or change in reaction to changes in our market, or if we are unable to maintain revenue growth, our stock price could decline, it may be difficult to achieve and maintain profitability and our business, financial condition and results of operations could be adversely affected.

 

26


Table of Contents

Our growth depends on our ability to attract and empower creators and our ability to properly support and incentivize our creators to create compelling, engaging and interactive content.

Our platform is powered by our creators and the content they bring to life. We depend on our creators to create compelling, engaging and interactive content and to enter into agreements with us with respect to the monetization and adaptation of such content. To facilitate and incentivize the content creation on our platform, we empower our creators with an end-to-end technology toolkit that enables content management, provides content creation support and is also supplemented with multilayered assistance. In addition, we provide our creators with an opportunity to monetize their creative efforts through various means, including Paid Content, advertising or IP Adaptations. If we fail to provide the right technologies or sufficient monetization opportunities to our creators, our creators may create less content or elect to create content on other platforms and, thus, our business, results of operations and financial condition could be adversely affected.

We compete to attract and empower creators by providing them the essential resources for success, including tools to create, manage and monetize their content. We compete for creators with popular technology platforms that provide creators the ability to create or distribute interactive content, and some of our creators have developed attractive businesses in developing content on our platform. Although our agreements with certain creators include certain exclusive distribution rights that the creators grant us, those agreements do not require them to continue to use our platform for any time period to create new content. In the future, if we are unable to continue to provide value to these creators and if they have alternative methods to publish and monetize their content, they may not continue to provide content to our platform. Should we fail to provide compelling advantages to continued use of our ecosystem to creators, they may elect to develop content on competing interactive entertainment platforms. We must continue to invest significant resources in research and development, including through acquisitions, in order to enhance our technology and platform. If a significant number of our creators no longer provide content, we may experience an overall reduction in the quality of user experiences, which could adversely affect users’ interest in our platform and lead to a loss of revenue opportunities and adversely affect our results of operations. Failure to adequately identify and provide sufficient monetization opportunities could adversely affect our business, financial condition or results of operations.

In addition, as there are few barriers for our creators to publish their content on our platform, we cannot guarantee that the content created by all creators on our platform will be of sufficient quality to attract users to our platform. Furthermore, any disputes or legal proceedings with our creators, especially the franchise stars that create popular and engaging content, may disrupt our relationships with them. Therefore, we cannot assure you that we will obtain or retain content on our platform with monetization value. If we lack popular content that can be monetized or fail to acquire a broad range of intellectual property rights of such literary content for monetization, our business, financial condition or results of operations could be adversely affected.

Our growth depends on our ability to retain, attract and engage with our users, and our ability to anticipate, understand and respond appropriately to market trends and rapidly changing user preferences in a timely manner.

The size of our user base and our users’ level of engagement are critical to our success, and our financial performance has been, and will continue to be, significantly determined by our success in retaining, attracting and engaging MAU and converting them into MPU. From our inception, we experienced our largest user growth in Korea, Japan and North America. We have experienced, and expect to continue to experience, fluctuations and declines in the size of our user base in one or more markets from time to time, particularly in markets where we have achieved higher penetration rates. Any future declines in the size of our user base may adversely impact our financial performance.

Our business performance is increasingly dependent on our ability to increase levels of user engagement in current and new markets. In particular, our performance will depend on our ability to convert the popularity of web-based comics and novels in Korea and Japan into other regions. If people do not perceive our platform to be

 

27


Table of Contents

useful, reliable or trustworthy, we may not be able to attract or retain users or otherwise maintain or increase the frequency, duration or level of their engagement. A number of other online content platforms or social platforms that achieved early popularity have seen the sizes of their user bases or levels of engagement subsequently decline, in some cases precipitously.

Any number of factors could adversely affect user retention, growth or engagement, including if:

 

   

we are unable to continue to offer content that users find highly engaging, that work with a variety of mobile operating systems, web browsers, other systems and networks and that achieve a high level of market acceptance, particularly in markets that we are targeting for expansion;

 

   

we are unable to convert users like we do in Korea and Japan;

 

   

users increasingly engage with competing products or services, particularly social media platforms, online content platforms and mobile games;

 

   

we are unable to obtain, manage and prioritize content to ensure users are presented with content that is appropriate, interesting, useful and relevant to them;

 

   

we are unable to introduce new and exciting features, products or services, or those we introduce are not favorably received;

 

   

initiatives designed to attract and retain users and engagement are unsuccessful or discontinued, whether as a result of actions by us, users, creators, third parties or otherwise;

 

   

we are unable to provide a compelling and intuitive user experience and environment, particularly relating to the delivery, quality, volume, design and layout of the content and advertisements delivered on our platform;

 

   

we are unable to provide adequate customer service to users or creators, or maintain relationships with key platform partners such as advertisers;

 

   

there are increased concerns of users or creators, or we suffer any incidents, relating to privacy, data protection, cybersecurity or safety;

 

   

there are changes mandated by legislation, regulatory authorities or litigation that adversely affect our platform, content, users or creators; or

 

   

we adopt terms, policies or procedures related to areas such as sharing, content, user data or advertising that are perceived negatively by our users or the general public.

There is no guarantee that we will not experience an erosion of our user base or a decline in engagement levels. A decrease in user retention, growth or engagement could negatively impact our revenue from users and render our platform less attractive to our creators and our platform advertisers, thereby reducing our revenues, which could adversely affect our business, financial condition and results of operations.

If we fail to retain or increase our paying users or if we fail to maintain or continue to increase our paying ratio, our business, financial condition or results of operations could be adversely affected.

We offer both Paid Content and free content to our users on our platform. A majority of our revenues are generated from the Paid Content on our platform. For the three months ended March 31, 2024, our Paid Content revenue was $266.9 million, accounting for 81.7% of our total revenue for the three months ended March 31, 2024. For the years ended December 31, 2023 and December 31, 2022, our Paid Content revenue was $1.0 billion and $851.9 million, accounting for 80.2% and 78.9% of our total revenue for the years ended December 31, 2023 and December 31, 2022, respectively. Our users may access our Paid Content by purchasing either our Fast Pass, which provides users with early access to upcoming episodes for ongoing series, or our Daily Pass, which provides users with access to locked episodes primarily from completed titles.

 

28


Table of Contents

The success of our business depends largely on our ability to generate sufficient paying user traffic through engaging content so as to retain existing and attract new users that are willing to pay for the Paid Content. Among all users who use our platform in any period, only a small percentage of such users are paying users. To attract and retain our paying users, we must continue to offer engaging and diversified content that meets our users’ fast changing appetite and enhance the interaction between users and creators. To that end, we must continuously anticipate, understand and respond appropriately to market trends and rapidly changing user preferences by generating suitable content in a timely and effective manner. We may not be able to maintain or continue to increase our paying ratio to achieve expected Paid Content revenues. If we fail to cater to the fast changing needs and preferences of our users, in particular our younger generation of users whose appetite may evolve from time to time and who may have higher demand in the quality and entertaining level of content, and, as a result, fail to deliver suitable content and a satisfactory user experience, our paying users will not find our Paid Content attractive or may find our Daily Pass or Fast Pass expensive. Consequently, they may reduce their spending on our Paid Content. As we generate a majority of our revenues from our paying users, it is particularly important for us to retain and increase the percentage of paying users and to maintain or increase their spending levels. There can be no assurance that we will be able to retain or increase paying users or that paying users will maintain or increase their spending. It is possible that we could lose more paying users than we gain in the future, which would cause a decrease in the monetization of our content and could adversely affect our business, financial condition and results of operations.

We operate in highly competitive markets, and we face significant competition to attract and empower our creators and users.

We face substantial competition across all geographic markets in which we operate and compete for both users and creators, and competitive pressures could adversely affect our business, financial condition or results of operations. We compete with companies of all sizes based on numerous factors, including our compelling, engaging and interactive content, personalized user experiences, various engaging and social features, advertising and promotional activities, brand recognition and loyalty, pricing and geographic reach. We compete for users and their engagement time with paper comics, other web-comic platforms, global entertainment companies, global gaming companies, online content platforms, as well as social platforms. Furthermore, the continued attractiveness of our content and geographic markets in which we operate may encourage the entry of new competitors of all sizes, which could increase other competitive pressures in the future. We may be unable to anticipate the timing and scale of the threats posed by our competitors or successfully respond to them. In addition, the cost of responding to increasingly significant and widespread competition worldwide, including management time and out-of-pocket expenses, could adversely affect our business, financial condition or results of operations.

Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages, such as:

 

   

larger sales and marketing budgets and resources;

 

   

broader and more established relationships and brand recognition with users and creators;

 

   

greater resources to make acquisitions and enter into strategic partnerships;

 

   

lower labor and research and development costs;

 

   

stronger competitive positions in certain geographic regions or user demographics;

 

   

larger and more mature intellectual property portfolios; and

 

   

substantially greater financial, technical and other resources.

We expect competition to continue to increase in the future. Conditions in our market could change rapidly and significantly as a result of technological advancements, the emergence of new entrants into the market,

 

29


Table of Contents

partnering or acquisitions by our competitors, continuing market consolidation or changing creator and user preferences, which can be difficult to predict or prepare for. Our competitors vary in size, and some may have substantially broader and more diverse offerings or may be able to provide more monetization opportunities for creators.

Maintaining and enhancing the market recognition and reputation of our brands is a critical component of our relationship with creators, users and other third parties.

Maintaining and enhancing the recognition and reputation of our brands is a critical component of our ability to compete for, and maintain and enhance our relationship with, creators, users and other third-party partners. We may also experience media, legislative or regulatory scrutiny of our actions or decisions regarding user privacy, data protection, cybersecurity, data use, content monitoring, advertising, competition and other issues, which may in the future adversely affect our reputation and brands. Our brands may also be negatively affected by the actions of people that are hostile or inappropriate, by accounts impersonating other people, by accounts identified as spam, by use or perceived use, directly or indirectly, of our products or services by people (including governments and government-sponsored actors) to disseminate information that may be viewed as offensive or inappropriate, by accounts introducing excessive amounts of spam on our platform, by third parties obtaining control over people’s accounts or by cyberattacks or other security incidents. Maintaining and enhancing our brands may require us to make substantial investments, and these investments may not achieve the desired goals.

Many factors, some of which are beyond our control, are important to maintaining and enhancing our brands and may negatively impact our brands and reputation if not properly managed, including our ability to:

 

   

maintain highly engaged users as user preferences evolve and as we expand into new markets;

 

   

increase brand awareness among existing and potential users and creators through various means of marketing and branding activities; and

 

   

adopt new technologies or adapt our platform and our systems to new user or creator requirements or emerging industry standards.

Additionally, we receive a high degree of media coverage around the world. Negative publicity about our company or executives, including about the quality of content shared on our platform, changes to our products, policies and services, our privacy, data protection, cybersecurity and policy enforcement, litigation, regulatory activity and the actions of certain accounts (including actions taken by prominent accounts on our platform or the dissemination of information that may be viewed as hateful, misleading or manipulative), even if inaccurate, could adversely affect our reputation. Such negative publicity and reputational harm could adversely affect our creators and users and their confidence in and loyalty to our platform and could result in decreased revenue or increased costs to reestablish our brands.

Our growth depends on our ability to innovate and expand our advertising business and to develop effective advertising products.

We generate a portion of our revenue from advertising on our platform. For the three months ended March 31, 2024, our advertising revenue was $37.0 million, accounting for 11.3% of our total revenue for the three months ended March 31, 2024. For the years ended December 31, 2023 and December 31, 2022, our revenue from advertising was $145.5 million and $145.1 million, respectively, accounting for 11.3% and $13.4% of our total revenue for the years ended December 31, 2023 and December 31, 2022, respectively. Most of our advertisers do not have long-term commitments with us, and many of our advertisers can terminate their contracts with us at any time. advertisers may not continue to do business with us, or they may reduce the budgets they are willing to commit to us, if we do not deliver advertisements in an effective manner or fail to develop effective advertising products, if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives or if they are not satisfied for any other reason. This requires us to effectively leverage

 

30


Table of Contents

digital technology and data analytics to gain new commercial insights and develop targeted marketing and advertising initiatives to reach users. If we are unable to provide advertisers with a suitable return on investment, the demand for our advertisements may not increase, or may decline, which may impact our revenue and financial results. In addition, our ability to generate and maintain our advertising revenues depends on a number of factors, including the maintenance and enhancement of our brands, our platform, the scale, engagement and loyalty of our users and the market competition on advertising prices. We cannot assure you that we will be able to retain existing advertisers or attract new ones. If we are unable to retain and enhance our relationships with advertisers, our business, financial condition and results of operations could be adversely affected.

We intend to continue to diversify our monetization strategy and increase revenues from IP Adaptations, which may not be successful.

We currently generate a substantial majority of our revenues from Paid Content distribution. We also generate a portion of our revenues from online advertising. We plan to strengthen revenue contribution from our other monetization methods, such as monetizing content on our platform via adaptations into film, streaming series and other rich media formats. We currently have various business models for IP Adaptations, including licensing out the rights to adapt content created by certain creators to intellectual property adaptation partners (e.g., studios, publishers, financiers, distributors, producers and potential buyers), participating in the pre-production phase for such adaptations, co-producing or investing in production for such adaptations alongside intellectual property adaptation partners and directly funding the entire project for such adaptations. We are in the early stage of our adaptation business and have a limited track record of, or experience in, generating substantial revenues from such adaptations. If our adaptation initiative does not enhance our monetization ability or enable us to develop new approaches to monetization, we may not be able to substantially increase our revenues or recover any associated costs. In addition, we may in the future introduce new services to further diversify our revenue streams, including services with which we have little or no prior development or operating experience. If these new or enhanced services fail to engage users, customers or content partners, we may fail to attract or retain users or to generate sufficient revenues to justify our investments and our business and operating results may suffer as a result.

Moreover, we may fail to effectively identify and develop popular content on our platform with adaptation potential, properly maintain our existing business relationship with our intellectual property adaptation partners in the future or develop new business relationships, our intellectual property adaptation partners may be less likely to source content from and develop business cooperation with us, the occurrence of which could adversely affect our business, financial condition and results of operations.

We intend to continue to expand our presence in existing and into new geographic markets and execute upon our growth initiatives, and our international expansion efforts may not be successful.

In recent years, we have grown, and we intend to continue to grow, our business by expanding our presence into new geographic markets. In seeking to expand our operations in geographic markets where we currently have a presence or to expand into new geographic markets where we currently do not have a presence, we expect, as we have in the past, to invest significant resources, incur expenses and face various challenges, including those related to compliance with market-specific laws or regulations, gaining acceptance of our platform, content and products from creators, users and third-party partners, some of whom may be less familiar with our company and our brands or have existing loyalty or relationships with competitors and their brands, the ability to monitor our platform in new and evolving markets and in different languages to confirm we maintain standards consistent with our brands and reputation and expanding our sales force and other personnel in those markets. We cannot predict with certainty the extent to which our platform, content and marketing efforts will be accepted or successful in any particular market, and it is possible that positive returns on our investments in a market will not be achieved for several years, or at all.

In addition, competition is likely to intensify in the new geographic markets where we plan to expand our presence. Local companies may have substantial competitive advantages because of their greater understanding of, and focus on, those local markets. Some of our competitors may also be able to develop and grow in certain

 

31


Table of Contents

geographic markets more quickly than we will. We may not be able to expand our presence in new geographic markets and attract creators or users in international markets and doing so will require considerable management attention and resources. International expansion is subject to the particular challenges of supporting a business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. If we are unable to offer our platform in certain countries, and successfully expand our presence into new geographic markets, our business, financial condition or results of operations could be adversely affected.

We face a variety of risks associated with conducting business around the world, and these risks will increase as we continue to expand our presence into new geographic markets.

We operate our platform in multiple geographies and are subject to risks and challenges associated with an international business. While we intend to continue to expand internationally, and this expansion is an important element of our future business strategy, there is no guarantee that our international expansion efforts will be successful. Expanding our presence into new geographic markets and having creators and users globally is accompanied by certain financial, economic and political risks, including:

 

   

local and regional economic environments and policies in the markets we serve, including interest rates, monetary policy, inflation, economic growth, recession, commodity prices and currency controls or other limitations on the ability to expatriate cash;

 

   

currency devaluations in jurisdictions experiencing high inflation rates or significant currency exchange fluctuations;

 

   

compliance with local regulations and laws, including in some jurisdictions, local regulations related to privacy, data protection and cybersecurity, content monitoring, preclusion and removal of online entertainment platforms, particularly as these rules apply to interactions with children;

 

   

lack of well-established, reliable or impartial legal systems in certain countries in which we operate and difficulties in enforcing contractual, intellectual property or other rights;

 

   

labor market disruptions or increase in labor costs in individual countries or regions;

 

   

foreign ownership and investment restrictions and potential nationalization or expropriation of our foreign assets;

 

   

sovereign risk related to a default by, or deterioration in, the creditworthiness of local governments, particularly in emerging markets;

 

   

political or social upheavals, economic instability, repression or human rights issues; and

 

   

other geopolitical events, including natural disasters, disruptions to markets due to war, armed conflict, terrorism, epidemics or pandemics and actions taken in response to these events, including increased trade controls, sanctions and other restrictive measures.

Any of the foregoing risks could have a significant impact on our ability to offer our platform in new geographic markets, could harm our ability to generate revenue internationally and, consequently, adversely affect our business, financial condition and results of operations. In addition, these risks will increase as we continue to expand our presence into new geographic markets.

Our future growth depends on our ability to continue innovating our platform to offer attractive features and safe and civil experiences for our creators and users.

We research, develop and continue to innovate our platform to incorporate additional features, improve functionality or other enhancements and prioritize user safety and security in order to meet the rapidly evolving demands of our creators and users. Maintaining adequate research and development resources, such as the appropriate personnel and development technology, to meet the demands of the market is essential.

 

32


Table of Contents

Developments and innovations on our platform may rely on new or evolving technologies which are still in development or may never be fully developed. If we fail to anticipate creators’ and users’ needs, the quality of the content created on our platform may not attract users to engage with our experiences and result in a decline of users on our platform. When we develop new or enhanced features for our platform, we typically incur expenses and expend resources upfront to develop, market, promote and sell new features. Therefore, when we develop and introduce new or enhanced features, they must achieve high levels of creator and user acceptance in order to justify the investment in developing and bringing them to market. Further, we have made and may in the future make changes to our platform or have added and may in the future add features that our users or creators do not like or find useful. Such changes and new features may be difficult to remove from the platform and expensive to maintain.

New features or enhancements and changes to the existing features of our platform could fail to attain sufficient market acceptance for many reasons, including:

 

   

failure to predict market demand accurately in terms of functionality and to supply features that meet this demand in a timely fashion;

 

   

defects, bugs, errors or failures;

 

   

negative publicity about performance or effectiveness;

 

   

delays in releasing new features or enhancements on our platform; and

 

   

introduction or anticipated introduction of competing products by competitors.

The failure to obtain market acceptance could adversely affect our brands, business, financial condition and results of operations.

We depend on effectively operating with mobile operating systems, hardware, technologies, products, standards and networks that we do not control, and changes to any of these or our platform could adversely affect our user retention, growth, engagement and monetization.

Because we depend on effectively operating with mobile operating systems, hardware, technologies, products, standards and networks, our application must remain interoperable with these and other popular mobile app stores and platforms and related hardware. Further, we are subject to the standard policies and terms of service of these operating systems, as well as policies and terms of service of the various application stores that make our application and experiences available to our creators and users. These policies and terms of service govern the availability, promotion, distribution, content and operation generally of applications and experiences on such operating systems and stores. Each provider of these operating systems and stores has broad discretion to change and interpret its terms of service and policies with respect to our platform, and those changes may be unfavorable to us and our creators’ and users’ use of our platform. If we were to violate, or an operating system provider or application store believes that we have violated, its terms of service or policies, that operating system provider or application store could limit or discontinue our access to its operating system or store. In some cases, these requirements may not be clear or our interpretation of the requirements may not align with the interpretation of the operating system provider or application store, which could lead to inconsistent enforcement of these terms of service or policies against us and could also result in the operating system provider or application store limiting or discontinuing access to its operating system or store. Any limitation on or discontinuation of our access to any third-party platform or application store could adversely affect our business, financial condition or results of operations. We may not successfully cultivate relationships with key industry participants or develop products that operate effectively with these technologies, systems, networks, regulations or standards. If it becomes more difficult for our users to access and engage with our platform on their mobile devices, if our users choose not to access or use our platform application on their mobile devices or if our users choose to use mobile products that do not offer access to our platform, our business and user retention, growth and engagement could be adversely affected.

 

33


Table of Contents

The owners and operators of these mobile application platforms, primarily Apple and Google, each have approval authority over our platform’s deployment on their systems and offer consumers products that compete with ours. Additionally, mobile devices are manufactured by a wide array of companies. Those companies have no obligation to test the interoperability of new mobile devices with our platform application and may produce new products that are incompatible with or not optimal for our platform. We have no control over these operating systems, application stores or hardware and any changes to these systems or hardware that degrade our platform’s functionality, or give preferential treatment to competitive products, could adversely affect our platform usage on mobile devices. An operating system provider or application store could also limit or discontinue our access to its operating system or store if it establishes more favorable relationships with one or more of our competitors, launches a competing product itself, or it otherwise determines that it is in its business interests to do so. Our competitors that control the operating systems and related hardware our application runs on could make interoperability of our platform with those mobile operating systems more difficult or display their competitive offerings more prominently than ours. Additionally, our competitors that control the standards for the application stores for their operating systems could make our platform application, or certain features of our platform, inaccessible for a potentially significant period of time. We plan to continue to introduce new technologies on our platform regularly and have experienced that it takes time to optimize such technologies to function with these operating systems, hardware and standards, impacting the popularity of our new technologies and features, and we expect this trend to continue.

Moreover, our platform requires high-bandwidth data capabilities. If the costs of data usage increase or access to cellular networks is limited, our user retention, growth and engagement could be adversely affected. Additionally, to deliver high-quality images and other content over mobile cellular networks, our platform must work well with a range of mobile technologies, systems, networks, regulations and standards that we do not control. In particular, any future changes to the iOS or Android operating systems or application stores may impact the accessibility, speed, functionality and other performance aspects of our platform, and may result in issues in the future from time to time. In addition, the proposal or adoption of any laws, regulations or initiatives that adversely affect the growth, popularity or use of the internet, including laws governing internet neutrality, could decrease the demand for our platform and increase our cost of doing business.

Restrictions on our ability to collect, use and otherwise process, data as desired could negatively impact our ability to leverage data about the content our creators create and how our users use our platform. This in turn could impact our resource planning and feature development planning for our platform. Similarly, at any time, these operating system providers or application stores can change their policies on how we operate on their operating system or in their application stores by, for example, applying content moderation for applications and advertising or imposing technical or code requirements. Actions by operating system providers or application stores such as the Apple App Store and the Google Play Store may affect the manner in which we collect, process and use data from end-user devices. Accordingly, future changes implemented by Apple or Google could adversely impact our revenue. In addition, these operating systems and application stores could change their business models and could, for example, increase application store fees, which could have an adverse impact on our business. There have been litigation and governmental inquiries over application store fees, and Apple or Google could modify their platform in response to litigation, investigations and inquiries in a manner that may adversely affect us.

We have a history of net losses, and we anticipate increasing expenses in the future, and we may not achieve or maintain profitability.

You should consider our business and prospects in light of the risks, expenses and difficulties encountered by companies in their early stage of development. We have incurred net losses from our inception until we generated a net income of $6.2 million for the three months ended March 31, 2024. While we generated a net income in the three months ended March 31, 2024, given the significant costs and expenses, including user acquisition costs associated with our business plan, we may not achieve or maintain profitability in the full fiscal year 2024 or future periods. We incurred a net loss of $144.8 million and $132.5 million for the years ended December 31, 2023 and December 31, 2022, respectively. As of March 31, 2024, December 31, 2023 and

 

34


Table of Contents

December 31, 2022, we had an accumulated deficit of $357.1 million, $363.3 million and $212.0 million, respectively. If our user growth does not increase to offset these anticipated increases in our operating expenses, our business, financial condition or results of operations could be adversely affected, and we may not be able to achieve or maintain profitability. These efforts may be more costly than we expect and may not result in increased revenue or growth of our business. In addition to the expected costs to grow our business, we also expect to incur significant additional legal, accounting and other expenses as a newly public company. If we fail to increase our revenue to sufficiently offset the increases in our operating expenses, we will not be able to achieve or maintain profitability in the future.

If we fail to control our content-related costs, the expenses we incur may exceed the increase in revenues.

High-quality and engaging content is the core driver and foundation of our platform. Content creation related costs, including payouts to creators, have historically accounted for a substantial portion of our cost of sales. We generally enter into revenue-sharing arrangements with certain of our creators pursuant to which we pay an upfront amount to obtain certain intellectual property and adaptation rights and we share revenue with them based on sales and other forms of monetization of the content they create. Due to the improving monetization prospects of engaging content, there is increasing competition for popular content. We expect our content-related costs to increase on an absolute basis as we expand our content library, and if we are unable to control our content-related costs, our business, financial condition or results of operations could be adversely affected.

The future success of our business relies heavily on our sales and marketing efforts, and if we fail to maintain sales and marketing efficiency, the marketing expenses we incur as we grow may exceed the increase in revenues.

We acquire users through both organic means and paid marketing strategies. We may be required to spend substantial resources on sales and marketing efforts to defend, maintain or improve our reputation or our brands or to successfully enter new markets, expand in existing markets or introduce new features on our platform. Our business, financial condition or results of operations could be adversely affected if we are unable to maintain and promote a favorable perception of our platform and brands on a cost-effective basis or if our marketing initiatives or promotional activities do not convey the desired message for our platform or its ability to attract creators and users. We expect our marketing expenses to increase in the future, particularly as we adapt to new and evolving media platforms and communication channels or enter new geographic markets. Our competitors could spend more resources on marketing efforts, use more efficient and effective marketing initiatives than we do or secure more effective endorsements from key opinion leaders or influencers, any of which may provide our competitors with a competitive advantage. If we are unable to continue to enhance and refine our marketing strategies, including if we fail to identify potential technologies to enhance our marketing and advertising capabilities, we may not be able to acquire sufficient users visiting our platform to sustain our growth. If we are unable to recover our marketing expenses through increased user traffic or increased revenue, we may not be able to generate a meaningful yield on our marketing efforts, which could have a material adverse effect on our growth, results of operations and financial condition. Furthermore, if claims that are made as part of our advertising or promotional activities, whether they are made by us or by social media influencers or other endorsers with whom we have relationships, become subject to legal or regulatory proceedings, it could damage our reputation or brands, cause us to alter our marketing initiatives in ways that could adversely affect our revenues or result in the imposition of significant damages or other penalties against us.

Future acquisitions of, or investments in, other companies, technologies or specialized employees could require significant management attention, disrupt our business and adversely affect our results of operations.

As part of our business strategy, we have made and intend to make acquisitions and investments to add complementary companies, features, technologies and highly skilled employees. In the future, we may not be able to find suitable acquisition or investment candidates, and we may not be able to complete acquisitions or

 

35


Table of Contents

investments on favorable terms, if at all. Pursuing acquisition targets, signing and closing acquisitions and investment transactions and integrating acquired businesses, brands, assets and technologies into our ongoing operations involve numerous potential risks that could adversely affect our business, financial condition or results of operations, including:

 

   

diverting management’s attention from other business priorities;

 

   

receiving necessary consents, clearances and approvals in connection with a transaction, including under antitrust and competition laws, which could delay or prevent the completion of a transaction or otherwise restrict our ability to realize the expected financial or strategic goals of a transaction;

 

   

successfully integrating the operations, technologies, services, products, systems and features of the acquired businesses, brands or assets in an effective, timely and cost-efficient manner;

 

   

to the extent applicable, integrating operations across different cultures and languages and addressing the particular economic, currency, political and regulatory risks associated with specific countries;

 

   

realizing the full extent of the expected benefits or synergies as a result of a transaction, within the anticipated time frame or at all;

 

   

successfully operating new lines of business, services, products or geographic markets;

 

   

achieving distribution expansion related to services, products, categories and geographic markets;

 

   

retaining key creators, users, employees, partners and suppliers of the acquired business;

 

   

conforming standards, controls, procedures and policies of the acquired business with our own;

 

   

developing and launching products and services with acquired technologies; and

 

   

other unanticipated problems or liabilities.

Moreover, our acquisitions could result in substantial exposure to contingent liabilities, such as litigation, indemnification claims and earn-out obligations. The occurrence of these or other costs of acquisitions, such as incurrence of substantial additional debt or transaction costs or impairment of goodwill or other intangible assets, could adversely affect our business, financial condition or results of operations.

Our future success depends on the continuing efforts of our founder and senior management and our ability to attract and retain highly skilled employees and key personnel.

We depend on the continued services and performance of our founder, Junkoo Kim and members of our senior management team. Junkoo Kim has been responsible for our strategic vision, and should he stop working for us for any reason, it is unlikely that we would be able to immediately find a suitable replacement. We do not maintain key man life insurance for Junkoo Kim, and do not believe any amount of key man insurance would allow us to recover from the harm to our business if Junkoo Kim were to leave the Company for any reason. Similarly, members of our senior management team are highly sought after, and others may attempt to encourage these individuals to leave the Company. The loss of one or more of the members of the senior management team for any reason, or the inability to attract new or replacement members of our senior management team in the future, could disrupt our operations, create uncertainty among investors, adversely impact employee retention and morale and adversely affect our business.

Our business also depends on our ability to attract and retain highly skilled employees and key personnel representing diverse backgrounds, experiences and skill sets. The market for talented employees and key personnel in our industry is extremely competitive, and our ability to compete depends on our ability to hire, develop and motivate highly skilled employees and key personnel in all areas of our business and in all geographic markets in which we operate, particularly as we continue to expand globally. Maintaining our brands, our reputation and a diverse, equitable and inclusive work environment enables us to attract top talent.

 

36


Table of Contents

Furthermore, our ability to attract and retain talent has been, and may continue to be, impacted to varying degrees by challenges in the labor market that emerge from time to time, such as wage inflation, labor shortages and changes in immigration laws and government policies. If we are less successful in our hiring efforts, or, if we cannot retain highly skilled employees and key personnel, then our business, financial condition or results of operations could be adversely affected.

We are dependent on NAVER to carry out our activities, and we may not be able to find suitable replacements if our services agreements with NAVER are terminated.

We have historically operated as a subsidiary of NAVER and relied on NAVER for certain functions to operate our business. Although we have established and intend to expand our own corporate functions, including facilities, insurance, logistics, quality, compliance, finance, human resources, benefits administration, information technology, legal, corporate strategy, corporate governance, other professional services and general commercial support functions, we still rely, and expect to continue to rely, on NAVER for certain functions. Additionally, we may rely on certain intellectual property owned by NAVER to operate our business and may rely on implied licenses, rather than formal written license agreements, from NAVER with respect to our use of such intellectual property. Pursuant to certain services agreements, subsidiaries of NAVER provide us with certain administrative services, including services relating to infrastructure, information technology and systems, accounting and financial services, human resources and marketing, office facilities, administrative personal and other services. We also have certain service agreements with LY Corporation and its subsidiaries. See “Certain Relationships and Related Party Transactions—Intercompany Services and Property Leases.” We expect to continue to rely on NAVER for the functions and services covered by the services agreements in the future. If our relationship with NAVER or LY Corporation deteriorates, it could impact the services they provide to us. Also, the services that NAVER or LY Corporation provides to us may be disrupted or otherwise adversely impacted by disruptions in their business, which is subject to economic, financial, operational, regulatory, litigation, intellectual property, cybersecurity or other risks. If some or all of the services agreements with NAVER, LY Corporation or their respective subsidiaries are terminated, including, in certain cases, without cause by NAVER, LY Corporation or their respective subsidiaries, we may not be able to bring the services and functions covered thereby in-house and, even if we are able to do so, we may need to continue to rely on third parties for all or part of these functions. Reliance on a third party may result in significant expenses and operational issues over which we will not have direct control.

Following the completion of this offering, certain of our executive officers and directors may have actual or potential conflicts of interest because of their equity interest in NAVER. Also, certain of NAVER’s current executive officers are our directors, which may create conflicts of interest or the appearance of conflicts of interest.

Because of their current or former positions with NAVER, certain of our executive officers and directors own equity interests in NAVER. Continuing ownership of shares of NAVER common stock and equity awards could create, or appear to create, actual or potential conflicts of interest if we and NAVER face decisions that could have implications for both companies following the completion of this offering. In addition, certain of NAVER’s current executive officers are our directors, and this could create, or appear to create, actual or potential conflicts of interest when we and NAVER encounter opportunities or face decisions that could have implications for both companies following the completion of this offering or in connection with the allocation of such directors’ time between us and NAVER. These actual or potential conflicts of interest could arise, for example, over matters such as the desirability of changes in our business and operations, funding and capital matters, regulatory matters and matters arising with respect to various intercompany service agreements with NAVER and its subsidiaries. See “Certain Relationships and Related Party Transactions—Intercompany Services and Property Leases.”

We expect that provisions relating to certain relationships and transactions in our Amended Charter will address certain actual or potential conflicts of interest between us, on the one hand, and NAVER and its directors, officers or employees who are our directors, officers or employees, on the other hand. See “Risk Factors—Risks Related to Our Business, Industry and Operations—NAVER and LY Corporation are not limited in their ability

 

37


Table of Contents

to compete with us, and the corporate opportunity provisions in our Amended Charter could enable them to benefit from corporate opportunities that may otherwise be available to us.” By becoming our stockholder, you will be deemed to have notice of, and consented to, these provisions of our Amended Charter.

NAVER and LY Corporation are not limited in their ability to compete with us, and the corporate opportunity provisions in our Amended Charter could enable them to benefit from corporate opportunities that may otherwise be available to us.

NAVER and LY Corporation operate various internet services and may, from time to time, acquire and hold interests in businesses that compete, directly or indirectly, with us. NAVER and LY Corporation may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. Conflicts of interest could arise in the future between us, on the one hand, and NAVER or LY Corporation, on the other hand, concerning, among other things, potential competitive business activities or business opportunities. NAVER and LY Corporation and their respective affiliates and certain members of our board of directors who are not employees of the Company (the “Non-Employee Directors”) may engage and may continue to engage in the same or similar activities or related lines of business as those in which we, directly or indirectly, may engage and/or other business activities that overlap with or compete with those in which we, directly or indirectly, may engage.

Our Amended Charter will provide that the doctrine of “corporate opportunity” does not apply with respect to (i) certain directors, principals, officers, employees and/or representatives of NAVER and LY Corporation and their respective affiliates and (ii) Non-Employee Directors and their respective affiliates (collectively, the “Identified Persons” and, individually, the “Identified Person”). The doctrine of corporate opportunity generally provides that a corporate fiduciary may not develop an opportunity using corporate resources or information obtained in their corporate capacity for their personal advantage, acquire an interest adverse to that of the corporation or acquire property that is reasonably incident to the present or prospective business of the corporation or in which the corporation has a present or expectancy interest, unless that opportunity is first presented to the corporation and the corporation chooses not to pursue that opportunity. The doctrine of corporate opportunity is intended to preclude officers, directors or other fiduciaries from personally benefiting from opportunities that belong to the corporation. Our Amended Charter will provide that, to the fullest extent permitted by law, we renounce any interest or expectancy that we would otherwise be entitled to have in, and any right to be offered an opportunity to participate in, any business opportunity that from time to time may be presented to or acquired, created, developed, or that otherwise may come into the possession of the Identified Persons and any of their respective affiliates, and us or any of our affiliates, including but not limited to opportunities with respect to the NAVER Group or the LY Group. None of the Identified Persons shall, to the fullest extent permitted by law, have any duty to refrain from directly or indirectly (i) engaging in the same or similar business activities or lines of business in which we or any of our affiliates now engages or proposes to engage or (ii) otherwise competing with us or any of our affiliates. In the event that any Identified Person acquires knowledge of a potential transaction or other business opportunity that may be a corporate opportunity for itself, herself or himself and us or any of our Affiliates, such Identified Person shall, to the fullest extent permitted by law, have no duty to communicate or offer such transaction or other business opportunity to us or any of our affiliates.

As a result, any Identified Person is not prohibited from operating or investing in competing businesses. We therefore may find ourselves in competition with such person, and we may not have knowledge of, or be able to pursue, transactions that could potentially be beneficial to us. Accordingly, we may lose a corporate opportunity or suffer competitive harm, which could negatively impact our business or prospects. See “Description of Capital Stock—Corporate Opportunity Doctrine.”

Our reliance on third parties in many aspects of our business exposes us to additional risks.

We rely on relationships with third parties in many aspects of our business, which exposes us to additional risks. For instance, we rely on certain local creators or popular technology platforms, such as our partnerships

 

38


Table of Contents

with Discord, Patreon and DC Comics, to drive user acquisitions, especially in new markets. Such local creators or popular technology platforms may limit or discontinue the access of potential users to our platform if they establish more favorable relationships with one or more of our competitors or they determine that we are a competitor. Any limitation on or discontinuation of access of potential users to our platform could significantly reduce our ability to acquire users, decrease the size of the user base we could convert into paying users or decrease the revenues we derive from paying users or advertisers, each of which would materially and adversely affect our business, financial condition and results of operations. We also rely on third-party intellectual property adaptation partners (e.g., studios, publishers, financiers, distributors, producers and potential buyers) for the adaptation or production of our content. We may not have sufficient control over the adaptation process and quality of the adaptation of content on our platform produced, on an outsourced basis, by our intellectual property adaptation partners, and we may be negatively affected by the activities or the lack of financial soundness of our intellectual property adaptation partners.

In addition, we rely on distributed computing infrastructure platforms and distribution channels to facilitate purchases of Coins. Our business will suffer if we are unable to maintain a good relationship with these distribution channels or develop relationships with new and emerging channels, if their terms and conditions or fee structure changes to our detriment, if we violate, or if a channel believes that we have violated, their terms and conditions or if any of these distribution channels loses market share or falls out of favor or is unavailable for a prolonged period of time. Furthermore, failure of these third parties to meet their obligations to us or substantial disruptions in our relationships with these third parties could adversely affect our business, financial condition or results of operations. See “Risk Factors—Risks Related to Our Business, Industry and Operations—If we, or our service providers, experience outages, constraints, disruptions or degradations in service, platform support or technological infrastructure, our ability to provide reliable services to our users and maintain the performance of our platform could be negatively impacted.” Managing these relationships inherently involves a lesser degree of control over business operations and compliance matters, thereby potentially increasing our reputational, legal, financial and operational risk. If our third-party partners fail to comply with applicable laws, regulations, quality standards or other obligations, norms or standards, our reputation or brands could be damaged, and we could be exposed to litigation, investigations, enforcement actions, monetary liability and additional costs that could adversely affect our business, financial condition or results of operations. Moreover, some third-party partners are located outside the U.S., which exposes us to additional risks inherent to conducting business around the world. These risks will increase as we continue to expand our presence in new geographic markets. See “Risk Factors—Risks Related to Our Business, Industry and Operations—We face a variety of risks associated with conducting business around the world, and these risks will increase as we continue to expand our presence into new geographic markets.”

In particular, NAVER Cloud Platform (“NAVER Cloud”) and Amazon Web Services (“AWS”) provide a distributed computing infrastructure platform for business operations, or what is commonly referred to as a “cloud” computing service. We have architected our software and computer systems so as to utilize data processing, storage capabilities and other services provided by NAVER Cloud and AWS. Currently, we run a material portion of our computing on these cloud services. Pursuant to their standard terms, AWS can terminate their contracts with us at any time. Also, we may not be able to renew our contracts with NAVER Cloud on terms acceptable to us, or at all. Given this, along with the fact that we cannot easily switch our NAVER Cloud and AWS operations to another cloud provider, any disruption of or interference with our use of NAVER Cloud and AWS, whether temporary, regular, prolonged or permanent, could adversely affect our business and operations.

Moreover, we utilize distribution channels, such as Apple or Google, to receive cash proceeds from sales of our Coins through direct purchases on our platform. Any scheduled or unscheduled interruption in the ability of our users to transact with these distribution channels could adversely affect our payment collection and, in turn, our revenue and bookings. We do not directly process purchases of Coins on our platform, and, thus, any information about those purchases (e.g., debit and credit card numbers and expiration dates, personal information and billing addresses) is disclosed only to the third-party online platform and service providers facilitating Coins purchases by users. We do not have control over the security measures of those providers, and their security

 

39


Table of Contents

measures may not be adequate. We could be exposed to litigation and possible liability if our users’ personal information or other transaction information involving Coin purchases is compromised, which could harm our reputation and our ability to attract users and could adversely affect our business. We also rely on the stability of such distribution channels and their payment transmissions to ensure continued payment services are provided to our users. If any of these providers fail to process or ensure the security of users’ payments for any reason, our reputation may be damaged, we may lose our paying users and users may be discouraged from purchasing Coins in the future, which could adversely affect our business, financial condition and results of operations.

Problematic content on our platform could affect the overall quality of our content, which could harm our reputation and deter our current and potential users from using our platform.

We, like others in the industry, face risk of violations of our content guidelines on our platform, including sophisticated attempts by bad actors to publish objectionable and offensive content on our platform. Although we have required our users to post appropriate content pursuant to our content guidelines and have set up screening procedures, our screening procedures may fail to screen out all potentially problematic content uploaded by creators and, even if properly screened, a third party may still find the content posted on our platform objectionable and offensive and take action against us in connection with the posting or dissemination of such content. For example, in the past, we had to remove content on our platform that was considered racially discriminatory and subjected us to negative publicity. Failure to identify or prevent objectionable and offensive content on our platform could hurt our reputation or reduce use of our platform, and adversely affect our business, financial condition and results of operations. It may also subject us to litigation and regulatory actions, which could result in monetary penalties and damages and divert management’s time and attention.

If we, or our service providers, experience outages, constraints, disruptions or degradations in service, platform support or technological infrastructure, our ability to provide reliable services to our users and maintain the performance of our platform could be negatively impacted.

Our users expect fast, reliable and resilient systems to enhance their experience, which depends on the continuing operation and availability of our information technology systems from a global network of third-party data centers, including third-party “cloud” computing services. We also provide services to our creators through our platform, including with our content enablement technology toolkit. The technologies on our platform are complex software products, and maintaining the sophisticated internal and external technological infrastructure required to reliably deliver these experiences and technologies is expensive and complex. The reliable delivery and stability of our platform has been, and could in the future be, adversely impacted by outages, constraints, disruptions, failures, interruptions, delays or degradations in our network and related infrastructure or those of our partners or service providers. We have experienced outages from time to time since our inception, during which our platform was unavailable for all or some of our users and creators. Outages, constraints, disruptions, failures, interruptions, delays or degradations, to which our business may be subject, can be caused by a number of factors, including a move to a new technology, the demand on our platform exceeding the capabilities of our technological infrastructure, computer and telecommunication failures, delays or failures resulting from earthquakes, adverse weather conditions, other natural disasters, pandemics, power loss, terrorism, geopolitical conflict, other physical security threats, cyberattacks or other security incidents, or other catastrophic events, the migration of data among data centers and to third-party hosted environments and issues relating to our reliance on third-party software and third parties that host our platform. Global climate change could also result in natural disasters occurring more frequently or with more intense effects, which could cause business interruptions. The unavailability of our platform, particularly if outages should become more frequent or longer in duration, could cause our users to seek other entertainment options, including those provided by our competitors, which may adversely affect our financial results. We may also experience a negative impact to our financial results as a result of decreased usage on our platform or decrease of payouts to creators. We may not always have full redundancy for all of our systems and our disaster recovery planning may not be sufficient to address all aspects of any unanticipated consequence or incident or allow us to maintain business continuity at profitable levels or at all. Further, in the event of damage or service interruption, our business interruption insurance policies will not

 

40


Table of Contents

adequately compensate us for any losses that we may incur. We may be subject to increased energy and other costs to maintain the availability or performance of our products in connection with any such events. These factors in turn could further reduce our revenues, subject us to liability or otherwise adversely affect our business, financial condition or results of operations.

In addition to the events described above, the data centers may also be subject to local administrative actions, changes to legal or permitting requirements and litigation that could stop, limit or delay operations. Despite a reliability program focused on anticipating and solving issues that may impact the availability of our platform and precautions taken at the data centers, such as disaster recovery and business continuity arrangements, the occurrence of spikes in usage volume, the occurrence of a natural disaster, hacking event or act of terrorism, cyberattacks or other security incidents, a decision to close the facilities without adequate notice, or our inability to secure additional or replacement data center capacity as needed or other unanticipated problems at the data centers could result in interruptions or delays on our platform, impede our ability to scale our operations or have other adverse impacts upon our business and adversely impact our ability to serve our creators and users.

Our creators or users may suffer a variety of outages or disruptions in accessing our platform for a variety of reasons, including issues with their technology providers. If we or our partners or third-party service providers experience outages and our platform is unavailable or if our creators and users are unable to access our platform within a reasonable amount of time or at all, as a result of any such events, our reputation and brands may be harmed, creator and user engagement with our platform may be reduced and our revenue and profitability could be negatively impacted. Customer support personnel and technologies are also critical to resolve issues and to allow creators and users to realize the full benefits that our platform provides. High-quality support is important for the retention of our existing creators and users and to encourage the expansion of their use of our platform. We must continue to invest in the infrastructure required to support our platform. If we do not help our creators and users quickly resolve issues and provide effective ongoing support, our ability to maintain and expand our platform to existing and new creators and users could suffer. In addition, if we do not make sufficient investments in servers, software or personnel in support of our infrastructure, and to scale effectively and accommodate increased demands placed on our infrastructure, the reliability of our underlying infrastructure will be harmed and our ability to provide a quality experience for our creators and users could be adversely affected. This would lead to a reduction in the number of creators and users on our platform, a reduction in our revenues and ability to compete and our reputation with existing or potential creators or users could suffer.

Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovative approach, creativity and teamwork fostered by our culture and our business could be harmed.

We believe that a critical component of our success has been our culture. We have invested substantial time and resources in building out our team with an emphasis on shared values and a commitment to diversity and inclusion. As we continue to grow and develop the infrastructure associated with being a public company, we will need to expend significant efforts to maintain our culture among a larger number of employees dispersed in various geographic regions. Additionally, with some of our employees currently working remotely following the COVID-19 pandemic, it may be more difficult to maintain or enhance our culture. Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our mission to build a leading story-based entertainment platform that engages and inspires creators and users globally.

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.

We regularly review metrics, such as our MAU, MPU, Paid Content ARPPU and Paid Content GMV, to evaluate growth trends, analyze user demand, measure our performance, gauge transaction volume and make

 

41


Table of Contents

strategic decisions. We measure these metrics based on a combination of internal data gathered on our platform, which have not been validated by an independent third party, and data from third-party sources. Our internal data and the data from third-party sources have not necessarily been prepared on a consistent basis or with the same methodology and may therefore not necessarily be comparable. The methodologies used to measure these metrics require significant judgment and are susceptible to algorithm or other technical errors. In addition, we are continually seeking to improve the way we estimate our user base and demand, and such estimates may therefore change due to improvements or changes in our methodology. Our metrics and estimates may also differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology or the assumptions on which we rely. If our estimates for these various metrics are inaccurate, then investors will have less confidence in our company and our prospects, which could cause the market price of our common stock to decline, and our reputation and brands could be harmed.

Further, while these metrics are based on what we believe to be reasonable estimates of our user base and demand for the applicable period of measurement, there are inherent challenges in measuring how our platform is used, and as a result, the metrics may overstate or understate Paid Content GMV, the number of MAU and Paid Content ARPPU. For example, since users do not have to log into their accounts to access content on our platform (except Paid Content) and our system is not able to identify their identity without the user log-in information, our MAU may be inflated when the same user accesses our offerings from different devices or at different times without logging into his or her account. A single user may be counted as different users by our system if such user changes his or her geographic location. We continually seek to address technical issues in our ability to record our user data and improve our accuracy, but given the complexity of the systems involved, the rapidly changing nature of mobile devices and operating systems, how our platform manages identity and the way our users access our platform, we expect these issues to continue. Moreover, there are users who have multiple accounts, fake user accounts or fraudulent accounts created by bots to inflate user activity for a particular creator on our platform, thus making the creator’s content appear more popular than it really is. We cannot eliminate duplicate users that access our content through multiple devices, and as a result, may double-count users. We strive to detect and minimize fraud and unauthorized access to our platform, which practices are prohibited in our terms of service, and we implement measures to detect and suppress that behavior, but we may not be successful in doing so. In addition, some of our demographic data may be incomplete or inaccurate. For example, because users self-report their dates of birth, our age demographic data may differ from our users’ actual ages. If our users provide us with incorrect or incomplete information regarding their age or other attributes, then our estimates may prove inaccurate.

Errors or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies. For instance, if a significant understatement or overstatement of active users were to occur, we may expend resources to implement unnecessary business measures or fail to take required actions to attract a sufficient number of users to satisfy our growth strategies. Also, Paid Content GMV is subject to a limitation that it is an operational metric to assess and analyze the trend of user demand, not a financial metric or a proxy for any financial metric, and as a result, cannot be used to understand our financial conditions or results of operations. If our creators do not perceive our user, geographic or other demographic metrics to be accurate representations of our user base, or if we discover material inaccuracies in our user, geographic or other demographic metrics, our reputation may be harmed. Our creators and partners may also be less willing to allocate their budgets or resources to our platform, which could adversely affect our business.

We focus our business on our creators and users, and acting in their interests in the long term may conflict with the short-term expectations of analysts and investors.

A significant part of our business strategy and culture is to focus on long-term growth and creator and user experience over short-term financial results. We expect our expenses to continue to increase in the future as we broaden our creator and user community, as our library grows, as we continue to seek ways to increase payments to our creators and as we develop and further enhance our platform, expand our technical infrastructure and data centers and hire additional employees to support our expanding operations. As a result, in the near- and medium-term, we may continue to operate at a loss, or our near- and medium-term profitability may be lower than it

 

42


Table of Contents

would be if our strategy were to maximize near- and medium-term profitability. We expect to continue making significant expenditures to grow our platform and develop new features, integrations, capabilities and enhancements to our platform for the benefit of our creators and users. Such expenditures may not result in improved business results or profitability over the long term. If we are ultimately unable to achieve or improve profitability at the level or during the time frame anticipated by securities or industry analysts, investors and our stockholders, the trading price of our common stock may decline.

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.

We intend to continue to make significant investments to support our business growth and may require additional funds to respond to business challenges, including the need for creators to develop engaging and immersive content, enhance our existing experiences, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of our common stock. Any debt financing that we secure in the future could involve offering additional security interests and undertaking restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be impaired and our business, financial condition and results of operations could be adversely affected.

If the security of our platform is compromised, it could compromise our and our creators’ and users’ personal, sensitive, confidential and proprietary information, disrupt our internal operations and harm public perception of our platform, which could adversely affect our business and reputation.

We collect, store and otherwise process personal data and certain other sensitive and proprietary information in the operation of our business, including creator and user information, and other confidential data. While we have implemented measures designed to prevent unauthorized access to, or loss of, personal, sensitive, confidential or proprietary information, mobile malware, viruses, hacking, social engineering, spam and phishing attacks have occurred and may occur on our systems in the future. Cybersecurity risks have increased in recent years in part because of the proliferation of new technologies, including artificial intelligence, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, state-sponsored actors and other external parties. Cybersecurity risks also may derive from fraud or malice on the part of our employees or third parties, or may result from human error, software bugs, server malfunctions, software or hardware failure or other technological failure. Because of the popularity of our platform, we may be an attractive target for these sorts of cyberattacks and other security incidents.

Further, the techniques used to obtain unauthorized access to, or to disrupt, systems or networks, are constantly evolving, may see their effectiveness enhanced by threat actors’ use of artificial intelligence and generally are not recognized until launched against a target. Consequently, we may be unable to anticipate these techniques, react in a timely manner or implement preventive measures, which could result in delays in our detection or remediation of, or other responses to, cyberattacks, security breaches and other security-related incidents. The wide availability of open-source software used in our solutions could also expose us to security vulnerabilities.

If any unauthorized access to our network, systems or data, including our sensitive and proprietary information, personal data from our users or creators, or other data, or any other security breach occurs, or is believed to have occurred, whether as a result of third-party action, employee negligence, error or malfeasance, defects, viruses, worms, malware, ransomware, denial of service attacks, credential stuffing, social engineering techniques, phishing or otherwise, our reputation, brands and competitive position could be damaged, our and our users’ and creators’ data and intellectual property could potentially be lost, disclosed, accessed or compromised,

 

43


Table of Contents

and we could be required to spend capital and other resources to alleviate problems caused by such actual or perceived breaches and remediate our systems, we could be exposed to a risk of loss, litigation, investigations or regulatory action and possible liability, and our ability to efficiently operate our business may be impaired. In the past, we have experienced cyberattacks and, if similar attacks occur and are successful, this could adversely affect our business or result in unfavorable publicity. For example, in July 2020, before Wattpad was acquired by NAVER in May 2021, Wattpad’s database was accessed by unauthorized, malicious actors and approximately 270 million personal records were affected. As a result, Wattpad has been subject to claims, including a class action claim, and in July 2023, received a notice of intent to impose a £985,000 fine from the United Kingdom Information Commissioner’s Office (the “ICO”). The ICO in December 2023 subsequently dismissed its claims against Wattpad regarding the incident and eliminated the fine. Additionally, we contract with certain third parties to store and process certain data for us, including our distribution channels, and these third parties face similar risks of actual and potential security breaches, which could present similar risks to our reputation, business, financial condition and results of operations. Our ability to monitor our third-party service providers’ data security is limited. Some of our third-party service providers may store or have access to our data and, despite such contractual provisions, may not have effective controls, processes or practices to protect our information from loss, unauthorized disclosure, unauthorized use or misappropriation or other cyberattacks or security incidents. A vulnerability in our third-party service providers’ software or systems, a failure of our third-party service providers’ safeguards, policies or procedures, or a cyberattack or other security incident affecting any of these third parties could harm our business.

The economic costs to us to reduce or alleviate cyber or other security problems such as spammers, errors, bugs, flaws, “cheating” programs, defects or corrupted data, could be significant and may be difficult to anticipate or measure. These issues may cause creators and users to use our platform less or stop using it altogether, and the costs could divert our attention and resources, any of which could result in claims, demands and legal liability to us, regulatory investigations and other proceedings, harm our reputation and brands, and otherwise adversely affect our business, financial condition or results of operations. There could also be regulatory fines imposed for certain data breaches that take place around the world. For example, the California Consumer Privacy Act, as amended by the California Privacy Rights Act (collectively, the “CCPA”), also allows for a private right of action for certain data breaches that relate to a specified set of personal information.

Although we maintain cyber, privacy and network security liability insurance, subject to applicable deductibles and policy limits, such coverage may not extend to all types of privacy, data protection and cybersecurity incidents, and it may be insufficient to cover all costs and expenses associated with such incidents. We cannot ensure that such insurance will continue to be available to us on commercially reasonable terms, or at all, or that our insurers will not deny coverage with respect to any particular incident.

We anticipate that our ongoing efforts related to privacy, data protection and cybersecurity, and content review will identify instances of misuse of user data or other undesirable activity by third parties on our platform.

In addition to our efforts to mitigate cybersecurity risks, we have made and are continuing to make investments in privacy, data protection, cybersecurity, safety and content review efforts to combat misuse of our services and user data by third parties, including investigations of individuals we have determined to have attempted to access user data without authorization. Our internal teams also continually monitor and address any unauthorized attempts to access data stored on servers that we own or control or data available to our third-party customer service providers. As a result of these efforts, we have discovered and announced, and anticipate that we will continue to discover and announce, additional incidents of misuse of, or unauthorized access of, user data or other undesirable activity by third parties. We have taken steps to protect the data that we have access to, but despite these efforts, our security measures or those of our third-party service providers could be insufficient or breached as a result of third-party action, malfeasance, employee errors, service provider errors, technological limitations, defects or vulnerabilities in our platform or otherwise. We may not discover all such incidents or activity or be able to respond to or otherwise address them, promptly or at all. Such incidents and activities have in the past, and may in the future,

 

44


Table of Contents

include the use of user data or our systems in a manner inconsistent with our terms, contracts or policies, the existence of false or undesirable user accounts, theft of Coins or other virtual items in valid user accounts, activities that threaten people’s safety on-or offline, or instances of spamming, scraping or spreading disinformation. We may also be unsuccessful in our efforts to enforce our policies or otherwise remediate any such incidents. Any of the foregoing developments, whether actual or perceived, may negatively affect user trust and engagement, harm our reputation and brands, require us to change our business practices in a manner adverse to our business and adversely affect our business and financial results. Any such developments may also subject us to future litigation and regulatory inquiries, investigations and proceedings, including from data protection authorities in countries where we offer services or have users, which could subject us to monetary penalties and damages, divert management’s time and attention and lead to enhanced regulatory oversight.

Our business is affected by seasonal demands, and our quarterly operations results fluctuate as a result.

We experience seasonality in monetization on our platform. Historically, we experienced higher levels of user engagement and monetization in the third quarter of the calendar year due primarily to 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 revenues, and in particular increase revenues from advertising, the seasonal impacts may be more pronounced in the future or different altogether.

Our results of operations, which are reported in U.S. dollars, could be adversely affected if currency exchange rates fluctuate substantially in the future.

As we continue to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. We incur expenses for employee compensation and other operating expenses at our non-U.S. locations in local currency. Fluctuations in the exchange rates between the U.S. dollar and other currencies could result in the dollar equivalent of our expenses being higher, which may not be offset by additional revenue earned in the local currency. This could have a negative impact on our reported results of operations. To date, we have not engaged in any hedging strategies, and any such strategies, such as forward contracts, options and foreign exchange swaps related to transaction exposures that we may implement in the future to mitigate this risk may not eliminate our exposure to foreign exchange fluctuations. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.

Increasing scrutiny and changing stakeholder expectations with respect to ESG and sustainability practices may impose additional costs or risks.

In recent years, companies across all industries are facing increasing scrutiny from stakeholders related to their ESG and sustainability practices. A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including increasing attention and demands for action related to climate change, promoting the use of substitutes to fossil fuel products and encouraging the divestment of companies in the fossil fuel industry. Investor advocacy groups, proxy advisory firms, certain institutional investors and lenders, investment funds and other influential investors and rating agencies are also increasingly focused on ESG and sustainability practices and matters and on the implications and social cost of their investments and loans. We have established a long-term strategy intended to meet ESG-related objectives, which currently includes certain sustainability targets. However, we cannot guarantee that this long-term strategy will meet our ESG-related objectives. Such initiatives are voluntary, not binding on our business or management and subject to change. We may determine in our discretion that it is not feasible or practical to implement or complete certain of our ESG-related initiatives, or to meet previously set goals and targets based on cost, timing or other considerations. If we do not adapt to or comply with investor or other stakeholder expectations and standards on ESG matters (or meet ESG-related goals and targets that we have set), as they continue to evolve, if we are perceived to have not responded appropriately or quickly enough

 

45


Table of Contents

to growing concern for ESG and sustainability issues, regardless of whether there is a regulatory or legal requirement to do so, or if estimates, assumptions and/or third-party information we currently believe to be reasonable are subsequently considered erroneous or misinterpreted, we may suffer from reputational damage and our business, financial condition and/or stock price could be materially and adversely affected.

Further, our operations, projects and growth opportunities require us to have strong relationships with various key stakeholders, including our stockholders, employees, suppliers, customers, local communities and others. We may face pressures from stakeholders, many of whom are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability while at the same time remaining a successfully operating public company. If we do not successfully manage expectations across these varied stakeholder interests, it could erode our stakeholder trust and thereby affect our brands and reputation. Such erosion of confidence could negatively impact our business through decreased demand and growth opportunities, increased legal action and regulatory oversight, adverse press coverage and other adverse public statements, difficulty hiring and retaining top talent, difficulty obtaining necessary approvals and permits from governments and regulatory agencies on a timely basis and on acceptable terms and difficulty securing investors and access to capital. The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition. In addition, we expect there will likely be increasing levels of regulation, disclosure-related and otherwise, with respect to ESG matters, which will likely lead to increased compliance costs as well as scrutiny that could heighten all of the risks identified in this risk factor. Such ESG matters may also impact our suppliers or customers, which could augment existing or cause additional impacts to our business or operations.

Our business and reputation may be harmed by changes in business, economic or political conditions that impact global markets, or by a systemic market event.

Concerns over global economic or market conditions, a recession or economic slowdown, geopolitical issues, including continued hostilities in Europe and the Middle East, the impacts of the COVID-19 pandemic, the availability and cost of credit and slowing economic growth have contributed to general economic uncertainty and diminished expectations for the global economy. Additionally, acts of protest and civil unrest have caused economic and political disruption in the U.S., and the occurrence or threat of terrorist attacks in the U.S. or other countries could adversely affect the economies of the U.S. and other countries. A deterioration in global economic or market conditions could adversely affect our business, financial condition or results of operations. Further, inflation has been an ongoing concern in the U.S. since 2021. Ongoing inflationary pressures have resulted in and may result in additional increases to the costs of goods, services and personnel, which in turn could cause our capital expenditures and operating costs to rise. For instance, as inflation increases, our costs related to web-comic production and software infrastructure maintenance may rise. Sustained levels of high inflation caused the U.S. Federal Reserve and other central banks to increase interest rates multiple times in 2022 and 2023 in an effort to curb inflationary pressure on the costs of goods and services, which could have the effects of raising the cost of capital and depressing economic growth, either of which (or the combination thereof) could hurt the financial and operating results of our business. To the extent elevated inflation remains, we may experience further cost increases for our operations.

Risks Related to Government Regulations and Legal Proceedings

We are, and could become, subject to significant legal proceedings and regulatory investigations that may result in significant expenses, fines and reputational damage.

In the ordinary course of business, we may be subject to a wide variety of claims, lawsuits and regulatory and governmental investigations involving various issues such as intellectual property, commercial contracts, data privacy, cybersecurity, product liability, employment, class action, whistleblower and other litigation claims and governmental and other regulatory investigations and proceedings. These claims and lawsuits may result in significant expenses, fines and reputational damage. Litigation can be expensive and disruptive, regardless of the merit of the underlying claims. Some of these matters may involve parties seeking large or indeterminate

 

46


Table of Contents

amounts, including punitive or exemplary damages, and may remain unresolved for several years. It is not feasible to predict the ultimate outcome of a legal proceeding, and our assessment of a proceeding, including any accruals taken in connection therewith, may not be consistent with the ultimate outcome of the legal proceeding. We could, from time to time in the future, be required to pay significant amounts as a result of settlement or judgments in legal proceedings, potentially in excess of accruals, including proceedings where we could be held jointly and severally liable among other defendants. Also, we may directly or indirectly be adversely affected by claims, lawsuits and regulatory and governmental investigations and proceedings involving NAVER or LY Corporation given our relationship with NAVER and LY Corporation. In addition, our current estimates of the potential impact of legal proceedings on our reputation, business, financial condition or results of operations could change from time to time in the future. The resolution of, or increase in accruals for, a legal proceeding in a particular reporting period could adversely affect our financial condition, results of operations or cash flows for that period.

The success of our growth strategy depends on our ability to provide a safe online environment for children.

We have made significant efforts to provide a safe and enjoyable experience for users of all ages. We invest significant technical and human resources to prevent inappropriate content from being published on our platform. Notwithstanding our efforts, from time to time, inappropriate content is uploaded onto our platform and viewed by others prior to being identified and removed by us. This content could cause harm to our audience and to our reputation of providing a safe environment for children to play online. If we are unable to prevent or are perceived as not being able to sufficiently prevent, inappropriate content from appearing on our platform, parents of children will lose their trust in the safety of our platform, which would harm our overall acceptance by these audiences and would likely result in reduced revenue, a smaller user base and, ultimately, damage to our ability to continue to successfully operate our platform.

In addition to generally blocking inappropriate content, we have statutory obligations under U.S. federal law to block or remove child pornography and report offenses to the National Center for Missing and Exploited Children, or NCMEC. Notwithstanding our efforts, from time to time, sexual content involving cartoon characters that appear to be children are uploaded to our platform and viewed by others prior to being removed by us, and any future noncompliance by us or allegations of noncompliance by us with respect to U.S. federal laws on child pornography or the sexual exploitation of children could harm our reputation, create criminal liability and could be costly and time consuming to address or defend. We may also be subject to additional criminal liability related to child pornography or child sexual exploitation under other domestic and international laws and regulations.

The privacy of children’s personal information collected online is also becoming increasingly scrutinized both in the U.S. and internationally. For example, the United Kingdom’s Age Appropriate Design Code (“AADC”) and incoming Online Safety Bill, focuses on online safety and protection of children’s privacy online. A similar law, California’s Age-Appropriate Design Code Act (“CAADCA”), was signed into law in California and is scheduled to go into effect on July 1, 2024. The CAADCA implements into law certain principles taken from the AADC, among other things, and imposes substantial new obligations upon companies. Passage of the CAADCA and similar laws may further complicate compliance efforts and may increase legal risk and compliance costs for us and our third-party partners. In the U.S., we may have obligations on the federal level under the Children’s Online Privacy Protection Act (“COPPA”). Despite our efforts, no assurances can be given that the measures we have taken to address COPPA requirements will be sufficient to completely avoid allegations of COPPA violations, any of which could expose us to significant liability, penalties, reputational harm and loss of revenue, among other things. Additionally, new laws and regulations are being considered in various jurisdictions to require the monitoring of user content or the verification of users’ identities and age and may restrict our ability to collect, use and otherwise process information, including personal information, about minors which may also result in limitations on our advertising services or our ability to offer products and services to minors in certain jurisdictions.

 

47


Table of Contents

We are subject to complex and evolving federal, state and international laws, regulations, rules, standards and contractual obligations regarding privacy, data protection and cybersecurity, which could result in investigations, claims, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could adversely affect our business.

We are subject to a variety of laws, regulations, rules, standards and contractual obligations in the U.S. and other countries that involve matters central to our business, including privacy, data protection and cybersecurity, including with respect to minors. The regulatory frameworks for privacy, data protection, cybersecurity and data transfers worldwide are rapidly evolving and are likely to remain uncertain for the foreseeable future. Certain privacy, data protection and cybersecurity laws and regulations have placed and will continue to place privacy, data protection and cybersecurity obligations and restrictions on organizations such as ours and may require us to continue to change our policies and procedures. Our approach with respect to such laws and regulations may be subject to further evaluation and change, our compliance measures may not be fully adequate and may require modification, we may expend significant time and cost in developing and maintaining a privacy governance program, data transfer or localization mechanisms, or other processes or measures to comply with such laws and regulations, and we may potentially face claims, litigation, investigations or other proceedings or liability regarding such laws and regulations and may incur liabilities, expenses, costs and other operational losses under such laws and regulations and any measures we take to comply with them, and result in changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could adversely affect our business. Some countries also are considering or have passed legislation requiring local storage and processing of data, or similar requirements, which could increase the cost and complexity of operating our products and services and other aspects of our business.

It is possible that the obligations imposed on us by applicable privacy, data protection and cybersecurity laws and regulations, or industry codes of conduct or other actual or asserted obligations relating to privacy, data protection or cybersecurity, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices in other jurisdictions. Significant fines and penalties may be imposed in connection with any violations of privacy, data protection or cybersecurity laws, regulations, rules, industry standards and other obligations depending on the severity of such violation, including recurring fines applicable for each violation. In addition, we may be subject to lawsuits, civil liability, sanctions, regulatory or government investigations, increased cost of operations and restrictions on our business practices. Additionally, due to the nature of our service, we are unable to maintain complete control over data security or the implementation of measures that reduce the risk of a cyberattack or other security incident. For example, our customers may accidentally disclose their passwords or store them on a mobile device that is “SIM swapped,” lost or stolen, creating the perception that our systems are not secured against third-party access. Any failure or perceived failure by us to comply with our privacy policies, our obligations to users or other third parties relating to privacy, data protection or cybersecurity or our other policies or obligations relating to privacy, data protection or cybersecurity or any actual or perceived compromise of security, including any such compromise that results in the unauthorized release, transfer or other processing of personal information or other user or creator data, may result in governmental investigations and enforcement actions, litigation, claims or public statements against us by consumer advocacy groups or others and could cause our creators and users to lose trust in us, any or all of which could have an adverse effect on our business, financial condition or results of operations.

We make public statements about our use and disclosure of personal information through our privacy policies, information on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policies and other statements that provide promises and assurances about privacy, data protection and cybersecurity can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Any concerns about our privacy, data protection and cybersecurity practices, even if unfounded, could damage our reputation and adversely affect our business.

 

48


Table of Contents

Governmental agencies may restrict access to our platform, mobile applications, website or the internet generally, which could lead to the loss or slower growth of our creators or users.

Our future success will depend in part on market acceptance and widespread adoption across demographics and geographies of our platform over other interactive entertainment offerings. The widespread availability of content generated by our creators on our platform is a new development, and the regulatory framework for broad dissemination of this content is new and evolving. We provide our creators with the ability to publish their content throughout the world, and each country is developing regulations and policies to regulate this new space, including with respect to privacy, data protection and cybersecurity, intellectual property, child protection, consumer protection, ratings and taxes. If we are unable to allow creators to comply with potentially conflicting regulations throughout the world, our ability to execute on our business model would be severely impacted, and our ability to grow our business could be harmed. Changes to these laws, regulations, rules, standards or obligations could require us to change our business strategy, take on more onerous obligations and impact the functionality of our platform. If we are obligated to fundamentally change our business activities and practices or modify our platform, we may be unable to make these required changes and modifications in a commercially reasonable manner, or at all, and our ability to further develop and enhance our platform may be limited. The costs of compliance with, and other burdens imposed by, these laws, regulations, rules, standards and obligations, or any inability to adequately address these, may limit the use of our platform or reduce overall demand for our platform, which could adversely affect our business, financial condition or results of operations.

In addition, governmental agencies in any of the countries in which we, our users or creators are located could block access to or require a license for our platform, our website, our application stores or the internet generally for a number of reasons, including privacy, data protection, cybersecurity, confidentiality or regulatory concerns which may include, among other things, governmental restrictions on certain content in a particular country and a requirement that user information be stored on servers in a country within which we operate. Governmental agencies could issue fines or penalties if there are instances where we are found not to have been in compliance with regulations in any of these areas. Users generally need to access the internet, including in geographically diverse areas, and also mobile platforms such as the Apple App Store and the Google Play Store, to access our content on our platform. If governmental or other entities block, limit or otherwise restrict creators and users from accessing our platform, or users from engaging with content on our platform, our business could be negatively impacted, we could be subject to additional fines and penalties, our creators and users could decline or grow more slowly and our business, financial condition or results of operations could be adversely affected.

In the EEA and United Kingdom, we are subject to the GDPR and UK GDPR, which impose stringent privacy, data protection and cybersecurity requirements on our business and could expose our business to considerable fines, penalties and other liabilities for noncompliance.

In the EEA, the GDPR imposes stringent privacy, data protection and cybersecurity requirements and carries considerable penalties for noncompliance, including fines up to €20 million or 4% of annual global revenues of the previous year, whichever is greater. Such fines would be in addition to (i) the rights of individuals to sue for damages in respect of any data privacy breach which causes them to suffer harm, (ii) the right of individual member states to impose additional sanctions over and above the administrative fines specified in the GDPR and (iii) the ability of supervisory authorities to impose orders requiring companies to modify their practices. If we are found not to be compliant with the GDPR or similar requirements, we may be subject to significant fines and the risk of civil litigation. Further, even the perception of such noncompliance may result in reputational damage and our business may be materially harmed.

Brexit has led to changes with regard to the regulation of privacy, data protection and cybersecurity in the United Kingdom. The United Kingdom maintains the Data Protection Act of 2018 and the United Kingdom General Data Protection Regulation (collectively, the “UK GDPR”), which together implement and complement the GDPR and provide for penalties for noncompliance of up to the greater of £17.5 million or four percent of

 

49


Table of Contents

worldwide revenues. The UK GDPR currently imposes the same obligations as the GDPR in most material respects, but we cannot fully predict how the Data Protection Act, the UK GDPR and other United Kingdom data protection laws or regulations may develop in the medium to longer term, nor the effects of divergent laws and guidance regarding how personal data will be regulated. We continue to monitor and review the impact of any changes to EU, United Kingdom or Swiss law or guidance that could affect our operations. For example, we are evaluating the United Kingdom’s AADC, which focuses on online safety and protection of children’s privacy online. The AADC became effective September 2, 2021, and noncompliance with the AADC may result in audits or other proceedings by the United Kingdom’s Information Commissioner Office (“ICO”), the regulatory body set up to uphold information rights in the United Kingdom, and other regulators in the EEA or Switzerland, as noncompliance with the AADC may indicate noncompliance with other applicable data protection laws. In addition, we are monitoring developments with the EU’s Digital Services Act (“DSA”), which came into force on November 16, 2022, and will become fully applicable on February 17, 2024. The DSA imposes new content moderation obligations, notice and transparency obligations, advertising restrictions and other requirements on digital platforms to protect consumers and their rights online. Noncompliance with the DSA could result in fines of up to 6% of annual global revenues, which are in addition to the ability of civil society organizations and non-governmental organizations to lodge class action lawsuits. We may incur liabilities, expenses, costs and other operational losses under the GDPR and laws and regulations of applicable member states of the European Union and the United Kingdom relating to privacy, data protection and cybersecurity in connection with any measures we take to comply with them.

In both the EEA and United Kingdom, we rely on data transfer mechanisms such as Standard Contractual Clauses (“SCCs”) or UK SCCs to comply with data protection requirements when transferring personal data from the EEA or the United Kingdom to other countries. On June 4, 2021, the European Commission published two sets of new SCCs, which took effect on June 27, 2021. On June 28, 2021, the European Commission announced a decision of “adequacy” concluding that the United Kingdom ensures an equivalent level of data protection to the GDPR, which provides some relief regarding the legality of continued personal data flows from the EEA to the United Kingdom. Such adequacy decision must, however, be renewed after four years and may be modified or revoked in the interim. Further, data protection authorities may require measures to be put in place in addition to SCCs or UK SCCs for transfers to countries outside of the EEA, as well as Switzerland and the United Kingdom. In July 2023, the European Commission adopted an adequacy decision concluding the new EU-U.S. data privacy framework (the “EU-U.S. DPF”) constitutes a lawful data transfer mechanism under EU law for participating U.S. entities; however, the EU-U.S. DPF may be in flux as such adequacy decision has been challenged, and is likely to face additional challenges, at the Court of Justice of the European Union. In addition, in June 2023, the U.S. and UK announced a commitment in principle to establish a “data bridge” to extend the EU-U.S. DPF to the flow of UK personal data under the UK GDPR to participating entities in the U.S. Such data bridge could not only be challenged, but also may be affected by any challenges to the EU-U.S. DPF. Our third-party service providers may be affected similarly by these changes. In addition to other impacts, we may experience additional costs associated with increased compliance burdens, and we and our creators and users face the potential for regulators in the EEA, Switzerland or the United Kingdom to apply different standards to the transfer of personal data from the EEA, Switzerland or the United Kingdom to the U.S. and other non-EEA, Switzerland or United Kingdom countries, and to block, or require ad hoc verification of measures taken with respect to, certain data flows from the EEA, Switzerland and the United Kingdom to the U.S. and other non-EEA, Switzerland or United Kingdom countries. We also may be required to engage in new contract negotiations with third parties that aid in processing data on our behalf, to the extent that any of our service providers or consultants have been relying on invalidated or insufficient contractual protections for compliance with evolving interpretations of, and guidance for, cross-border data transfers pursuant to the GDPR and UK GDPR. In such cases, we may not be able to find alternative service providers, which could limit our ability to process personal data from the EEA, Switzerland or the United Kingdom and increase our costs.

 

50


Table of Contents

Our business could be subject to fines, penalties and administrative and criminal sanctions for failure to comply with privacy, data protection and cybersecurity laws in Korea.

We are subject to Korean laws, regulations and orders, including the Personal Information Protection Act (“PIPA”), the Act on the Promotion of Information and Communications Network Utilization and Protection of Information and the Credit Information Act, which specifically regulate the processing of certain personal information. PIPA requires us to seek and obtain consent from our consumers in Korea with respect to our use of their personal data and requires our officers and employees responsible for management of such personal data to take the necessary technological and managerial measures to prevent data breaches and, among other duties, notify the Personal Information Protection Commission of certain data breach incidents within 72 hours. Failure to comply with PIPA in any manner may subject such responsible officers and employees to certain administrative or criminal sanctions, ranging from a monetary penalty to imprisonment, for not having obtained such consent in an appropriate manner or for not having complied with such duties, including due to negligence. In case such officers and employees become subject to criminal liability as a result of such failure, we, as their employer, may become vicariously liable for their noncompliance with PIPA. Since PIPA and other Korean laws, regulations and orders in connection with personal information are complex and evolving and are subject to interpretation by government regulators which may change over time, we are subject to the risk of claims by regulators for our failure to comply with such laws, regulations and orders despite our efforts to comply with them.

We are subject to Japanese privacy, data protection and cybersecurity laws, including the Act on the Protection of Personal Information, and failure to comply with such laws may negatively affect our business, operations or financial conditions.

In Japan, we are subject to laws, regulations and guidelines regarding data privacy and security including those relating to the processing, safekeeping, and use of personal data, in respect of each of which the relevant regulators in Japan have broad discretion to interpret the relevant laws and regulations. The Act on the Protection of Personal Information (the “APPI”) in Japan is to protect rights and interests of individuals, while balancing the usefulness of personal information. The APPI mainly concerns three situations: (i) acquisition and use; (ii) storage; and (iii) transfer of personal information. When personal information is acquired, the purpose of use must be notified to the relevant individuals or made public, except in cases where the purpose of use has been made public in advance. The purpose of use must be specified, and the acquired personal information must be used within the scope of such purpose of use. When storing personal information, it is necessary to manage it safely so that it will not be leaked. For the safe management, the APPI requires business operators holding personal information to establish a security management systems. It includes establishment of fundamental rules on personal information management, appointment of personnel responsible for personal information management, and provision of regular training courses on privacy and security breaches and implementation of physical and technical security control measures. Additionally, when transferring personal data to a third party, it is necessary, in principle, to obtain the consent of the principal in advance. The APPI requires business operators to make reports to the Personal Information Protection Commission (the “PIPC”) or other competent government entities and to notify to data subjects when certain data security incidents have occurred or may have occurred. In the event that an individual violates the above obligations under the APPI and also violates an associated improvement order issued by the PIPC, a criminal penalty of “imprisonment for not more than one year or a fine of not more than one million yen” could be imposed on the individual who violated the law. In addition, a criminal penalty of “a fine of up to 100 million yen” could be imposed on the violating entity. A victim may file a claim for damages based on torts against the offending entity for damages caused by the leakage and for compensation. Furthermore, if there is a contractual relationship between the victim and the entity, and the leakage of personal information is judged to constitute a breach of contract, damages may be claimed for breach of contract.

We may incur liabilities, expenses, costs and other operational losses under the APPI and other Japanese laws, regulations, guidelines and orders relating to privacy, data protection and cybersecurity. Also, since such laws, regulations, guidelines and orders are complex and evolving and are subject to interpretation by

 

51


Table of Contents

government regulators which may change over time, we are subject to the risk of claims by regulators for our failure to comply with such laws, regulations, guidelines and orders despite our efforts to strive to comply with them. Failure to comply with such laws, regulations, guidelines and orders may negatively affect our business, operations or financial conditions.

We are subject to a variety of federal and state laws in the U.S. that govern privacy, data protection and cybersecurity, which require us to expend considerable resources to ensure compliance and could subject us to fines, penalties and other liabilities for failure to comply.

In the U.S., although there is not yet a comprehensive federal data protection law equivalent to the GDPR, proposals for such comprehensive legislation are under constant consideration by Congress. In the meantime, we remain subject to existing federal regulation such as COPPA and the authority of the Federal Trade Commission (the “FTC”) under the Federal Trade Commission Act (the “FTC Act”). At the state level, California has enacted the CCPA, which gives California residents expanded privacy rights and protections, requiring us to modify our data processing practices and policies and incur compliance related costs and expenses. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches, which may increase the likelihood and cost of data breach litigation. Further, the CCPA has prompted similar legislative developments in other states in the U.S. such as Virginia, which in March 2021 enacted a Consumer Data Protection Act that became effective as of January 1, 2023, Colorado, which in June 2021 enacted a Colorado Privacy Act that became effective July 1, 2023, Utah, which in March 2022 enacted the Utah Consumer Privacy Act that became effective as of December 31, 2023, and Connecticut, which in May 2022 enacted the Act Concerning Personal Data Privacy and Online Monitoring that became effective as of December 31, 2023. In addition, laws in all 50 U.S. states generally require businesses to provide notice under certain circumstances to individuals whose personal information has been disclosed as a result of a data breach. The potential effects of new and evolving legislation relating to privacy, data protection and cybersecurity are far-reaching, create the potential for a patchwork of overlapping but different laws, and may require us to modify practices and policies and, incur substantial costs and expenses in an effort to comply, or restrict our operations. Aspects of the CCPA and other federal and state laws and regulations relating to privacy, data protection and cybersecurity, as well as their enforcement, remain unclear, and we may be required to modify our practices in an effort to comply with them. New legislation or regulatory decisions that restrict our ability to collect and use information about minors may also result in limitations on our advertising services or our ability to offer products and services to minors in certain jurisdictions. See “Risk Factors—Risks Related to Our Business, Industry and Operations—The success of our growth strategy depends on our ability to provide a safe online environment for children.”

There also has been increasing regulatory scrutiny from the SEC with respect to adequately disclosing risks concerning cybersecurity. On July 26, 2023, the SEC adopted new cybersecurity disclosure rules for public companies that require disclosure regarding cybersecurity risk management (including the corporate board’s role in overseeing cybersecurity risks, management’s role and expertise in assessing and managing cybersecurity risks, and processes for assessing, identifying and managing cybersecurity risks) in annual reports. These new cybersecurity disclosure rules also require the disclosure of material cybersecurity incidents in a Form 8-K generally within four days of determining an incident is material. We will be subject to such annual report disclosure requirements starting with our 2024 Form 10-K and we will be subject to such Form 8-K disclosure requirements upon completion of the offering.

We are subject to laws and regulations worldwide, many of which are unsettled and still developing, and noncompliance with such laws and regulations could subject us to liability.

We are subject to a variety of laws in the U.S. and abroad that affect our business. As a global platform, we are subject to myriad regulations and laws regarding consumer protection, including the use of gift cards, advertising, electronic marketing, protection of minors, privacy, data protection and cybersecurity, data localization requirements, online services, anti-competition, freedom of speech, labor, real estate, taxation, intellectual property ownership and infringement, tax, export and national security, tariffs, anti-corruption and

 

52


Table of Contents

telecommunications, all of which are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly laws outside the U.S., and compliance with laws, regulations and similar requirements may be burdensome and expensive. Laws and regulations may be inconsistent from jurisdiction to jurisdiction, which may increase the cost of compliance and doing business and expose us to possible litigation, penalties or fines. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could make our platform less attractive to our users or creators or cause us to change or limit the offerings in our platform. We have policies and procedures designed to ensure compliance with applicable laws and regulations, but we cannot assure you that we will not experience violations of such laws and regulations or our policies and procedures.

We are potentially subject to a number of foreign and domestic laws and regulations that affect the offering of certain types of content, such as that which depicts violence, many of which are ambiguous, still evolving and could be interpreted in ways that could adversely affect our business or expose us to liability. Foreign governments may censor our platform in their countries, restrict access to our platform from their countries entirely, impose other restrictions that may affect their citizens’ ability to access our platform for an extended period of time or even indefinitely, require data localization or impose other laws or regulations that we cannot comply with, would be difficult for us to comply with or would require us to rebuild our platform or the infrastructure for our platform. Numerous countries, including Germany, have regulations relating to this area and they may impose significant fines for failure to comply with certain content removal and disclosure obligations. Other countries, including Singapore, India, Turkey, Mexico, Australia and the United Kingdom, have implemented or are considering similar legislation imposing penalties for failure to remove certain types of content. On the other hand, some users and creators may choose not to use our platform if we actively police content.

In addition, new regulation by the U.S. federal government and its agencies, such as the U.S. FTC, state agencies or foreign jurisdictions, which may vary significantly, could require that certain content on our platform be modified or removed, increase the costs of operating or monitoring the content on our platform, impact user and creator engagement and thus the functionality and effectiveness of our platform or otherwise adversely affect our business. It is difficult to predict how existing or new laws may be applied. If we become liable, directly or indirectly, under these laws or regulations, we could be harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to modify our platform, which adversely affect our business, financial condition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or brands or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could adversely affect our business, financial condition or results of operations.

It is also possible that a number of laws and regulations may be adopted or construed to apply to us or our users or our creators in the U.S. and elsewhere that could restrict the online and mobile industries, including creator and user privacy, data protection, cybersecurity, advertising, user acquisition practices, taxation, content suitability, intellectual property, distribution and antitrust, and our platform, content or components thereof may be deemed or perceived illegal or unfair practices. We anticipate that scrutiny and regulation of our industry will increase, and we will be required to devote legal and other resources to addressing such regulation. For example, existing laws or new laws regarding the marketing of in-app purchases, banking institutions, unclaimed property or money transmission may be interpreted to cover the revenue that we receive from our platform. If that were to occur, we may be required to maintain certain records and seek licenses, authorizations or approvals from relevant regulators, the granting of which may be dependent on us meeting certain capital and other requirements, and we may be subject to additional regulation and oversight and other operational requirements, all of which could significantly increase our operating costs. Changes in current laws or regulations or the imposition of new laws and regulations in the U.S. or elsewhere, or any withdrawal by us from certain countries because of such actions, could adversely affect our users, including by giving our competitors an opportunity to penetrate geographic markets that we cannot access. As a result, our user growth, retention and engagement could be harmed.

 

53


Table of Contents

We are subject to various governmental export control, trade sanctions and import laws and regulations that require our compliance and could subject us to liability if we violate these controls.

We are subject to laws and regulations that could limit our ability to permit access to our platform and content or to engage with certain content creators or contractors. For example, certain U.S. laws and regulations administered and enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), in combination with other applicable export control and economic sanctions laws and regulations, collectively referred to as the Trade Control Laws and Regulations, may limit our ability to give certain users and creators access to certain aspects of our platform and experiences, to engage with certain creators or contractors, or to permit downloads of our applications because such persons appear on restricted party lists maintained by OFAC or other U.S. government agencies or are located in countries or territories that are comprehensively embargoed by OFAC. The Trade Control Laws and Regulations are complex and dynamic, and monitoring and ensuring compliance can be challenging. In certain instances, we rely on our payment processors for compliance with certain of these Trade Control Laws and Regulations. Specifically, our payment processors will not allow any paid activity by users and creators that attempt to access our platform from various jurisdictions specified by OFAC, such as the Crimea region Ukraine, the so-called Donetsk People’s Republic of Ukraine, the so-called Luhansk People’s Republic of Ukraine, Cuba, Iran, North Korea and Syria, or paid activity by users and creators that appear on various U.S. and foreign government restricted party lists. In addition, the mobile application stores through which our applications are available have implemented protocols to prevent downloads in these specified countries and territories. However, users and creators from certain of these countries and territories have access to our web-based platform and content and there may be users and creators elsewhere that may be subject to restrictions of which we are not aware. Accordingly, there can be no guarantee we will be found to have been in full compliance with Trade Control Laws and Regulations during all relevant periods. Any failure by us or our payment processors or the mobile application stores to comply with the Trade Control Laws and Regulations may lead to violations of the Trade Control Laws and Regulations that could expose us to liability. Any failure to comply with applicable laws and regulations also could have negative consequences for us, including reputational harm, government investigations and monetary penalties. In addition, various foreign governments may also impose controls, export license requirements and restrictions. Compliance with such applicable regulatory requirements may create delays in the introduction of our platform in some international markets or prevent our international users from accessing our platform.

We are subject to the Foreign Corrupt Practices Act and similar anti-corruption, anti-bribery and anti-money laundering laws, and noncompliance with such laws can subject us to criminal or civil liability.

We are subject to the Foreign Corrupt Practices Act, U.S. domestic bribery laws, the United Kingdom’s Bribery Act 2010 and other anti-corruption and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, business partners and third-party intermediaries from authorizing, offering or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector in order to influence official action, direct business to any person, gain any improper advantage, or obtain or retain business. As we increase our international business, our risks under these laws may increase.

As we increase our international business, we may engage with business partners and third-party intermediaries to market our solutions and obtain necessary permits, licenses and other regulatory approvals. In addition, we or our employees, agents, representatives, business partners or third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of our employees, agents, representatives, business partners or third-party intermediaries, even if we do not authorize such activities.

These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies, training and procedures to

 

54


Table of Contents

address compliance with such laws, we cannot assure you that none of our employees, agents, representatives, business partners or third-party intermediaries will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.

Detecting, investigating and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources and attention from senior management, as well as significant defense costs and other professional fees. In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions against us, our officers or our employees, disgorgement of profits, suspension or debarment from contracting with the U.S. government or other persons, reputational harm, adverse media coverage and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our reputation could be harmed and our business, financial condition, results of operations and the price of our common stock could be adversely affected.

Changes in tax laws could subject us to additional tax liabilities.

Changes in tax laws or regulations in jurisdictions in which we operate, including changing laws in the U.S. and other countries, could negatively impact our effective tax rate and adversely affect our business, results of operations or financial condition. A change in statutory tax rate or certain international tax provisions in any jurisdiction would result in the revaluation of our deferred tax assets and liabilities related to that particular jurisdiction in the period in which the new tax law is enacted. Any such change would result in an expense or benefit recorded to our consolidated statements of operations and comprehensive loss. We closely monitor these proposals as they arise in the jurisdictions where we operate. Changes to tax laws or regulations may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted. We conduct business and file tax returns in numerous jurisdictions and are subject to regular reviews, examinations and audits by many tax authorities around the world. These reviews, examinations and audits can cover periods for several years prior to the date the review, examination or audit is undertaken and could result in the imposition of material tax liabilities, including interest and penalties, if our positions are not accepted by the applicable tax authority. In connection with various government initiatives, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other jurisdictions. We regularly assess the likely outcomes of our tax audits and disputes to determine the appropriateness of our tax reserves. However, any tax authority could take a position on tax treatment that is contrary to our expectations, which could result in tax liabilities, including interest and penalties, in excess of reserves.

Risks Related to Intellectual Property

Claims by others that we infringe, misappropriate or otherwise violate their intellectual property rights through the activities of our creators or users or the content on our platform could subject us to liability.

We have been and may in the future become subject to intellectual property disputes, and may become subject to liability, costs and awards of damages and injunctive relief as a result of these disputes. Our success depends, in part, on our ability to obtain and host content and develop our platform without infringing, misappropriating or otherwise violating the intellectual property rights of third parties. However, there is no assurance that our content or platform will not be found to infringe, misappropriate or otherwise violate the intellectual property rights of third parties. Lawsuits may be time-consuming and expensive to resolve, and they divert management’s time and attention. Additionally, there can be no assurance that favorable outcomes will be obtained in any such litigation or disputes. Further, because of the substantial amount of discovery required in connection with intellectual property litigation, we risk compromising our confidential information during this type of litigation. Companies in the internet, technology and content industries typically own large numbers of copyrights, patents, trademarks, domain names and trade secrets and frequently enter into litigation based on

 

55


Table of Contents

allegations of infringement, misappropriation or other violations of intellectual property or other rights. As we expand in the global market and face increasing competition, the possibility of intellectual property rights and other claims against us grows. In addition, various “non-practicing entities,” and other intellectual property rights holders may attempt to assert intellectual property claims against us or seek to monetize the intellectual property rights they own to extract value through licensing or other settlements. Our intellectual property rights may not be able to withstand any third-party claims challenging them.

If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or cease access to our platform or cease business activities related to such intellectual property. Any failure to do so may subject us to civil or criminal liability in certain jurisdiction. In addition, we may need to settle litigation and disputes on terms that are unfavorable to us. We may be required to make substantial payments for legal fees, settlement fees, damages, royalties or other fees in connection with a claimant securing a judgment against us. For example, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. To the extent we hire personnel from competitors, we may be subject to allegations that such personnel have divulged proprietary or other confidential information to us. Further, we may be unaware of the intellectual property rights of others that may cover some or all of our technology. Although we carry general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to cover all liability that may be imposed. We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our business, financial condition and results of operations. Any intellectual property claim asserted against us, or for which we are required to provide indemnification, may require us to do one or more of the following:

 

   

cease selling or using or recall products that incorporate the intellectual property rights that we allegedly infringe, misappropriate or otherwise violate;

 

   

make substantial payments for legal fees, settlement payments or other costs or damages;

 

   

obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology or content; or

 

   

redesign or rebrand the allegedly infringing products to avoid infringement, misappropriation or other violation, which could be costly, time-consuming or impossible.

Our defenses to claims of infringement, misappropriation or other violations of third-party intellectual property rights are costly and may not be successful.

We rely on a variety of statutory and common-law frameworks and defenses relevant to the content available on our platform, including the U.S. Digital Millennium Copyright Act (“DMCA”), the Communications Decency Act, or CDA, the fair-use doctrine in the U.S., and the Electronic Commerce Directive in the EU, but those protections may change or disappear over time, increasing our exposure to claims of copyright or other intellectual property infringement, misappropriation or other violation. If we should lose or fail to qualify for statutory or other legal protections that immunize us from monetary damages for intellectual property infringement, misappropriation or other violation, the damages could be significant and have a material impact on our business.

In the U.S., the DMCA is intended, in part, to limit the liability of eligible service providers for caching, hosting, or linking to user content that includes materials that infringe copyrights or other rights. We rely on the protections provided by the DMCA in conducting our business. Similarly, Section 230 of the Communications Decency Act (“Section 230”) protects online distribution platforms from actions taken under various laws that might otherwise impose liability on the platform provider for what content creators develop or the actions they take or inspire. However, the DMCA, Section 230 and similar statutes and doctrines that we may rely on in the future are subject to uncertain judicial interpretation, regulatory supplementation or modification and legislative

 

56


Table of Contents

amendments. Our current protections from liability for third-party content posted on our platform in the U.S. could decrease or change, potentially resulting in increased liability for third-party content posted on our platform.

The EU has enacted copyright laws such as the Directive on Copyright in the Digital Single Market (the “Copyright Directive”) that came into effect on June 6, 2019, that require us to use best efforts in accordance with the high industry standards of professional diligence to exclude infringing content from our platform that may be uploaded by our users. Although we have set up certain procedures to enable copyright owners to provide us with notice of alleged infringement, it may not be possible to remove or disable all potentially infringing content that may exist. Similarly, although we have set up screening processes to try to filter out or disable access to content that we have previously been informed is subject to claims of copyright or other intellectual property protection, we may not be able to successfully filter out or disable access to all potentially infringing content available on our platform.

Each of these frameworks and defenses is subject to uncertain or evolving judicial interpretation, regulatory supplementation or modification and legislative amendments. In addition, pending or recently adopted legislation in the U.S., EU and UK may impose additional obligations or liability on us associated with content uploaded by users to our platform. If the rules, doctrines or currently available defenses change, if international jurisdictions refuse to apply protections similar to those that are currently available in the U.S., the EU or the UK if a court were to disagree with our application of those rules or doctrines to our services, we could be required to expend significant resources to try to comply with the new rules or incur liability, and our business, revenue and financial results could be adversely impacted.

While we have implemented measures to limit our exposure to claims of intellectual property infringement, intellectual property owners may allege that we failed to take appropriate measures, to prevent infringing activities on our systems, that we turned a blind eye to infringement, or that we facilitated, induced or contributed to infringement. We could be subject to an adverse judgment in any litigation relating to claims of infringement if a lawsuit were filed against us or be forced to settle any claims for an as-yet undetermined amount. Depending on how such claims are resolved, the impact on us could be material. Our insurance may not be adequate to cover these types of claims or any liability that may be imposed on us. Additionally, the risk of an adverse determination in any litigation or proceeding or an actual adverse determination in any litigation or proceeding may result in harm to our reputation or in adverse publicity. The risk of an adverse result or the actual adverse result in litigation may also require us to seek licenses from third parties, which may or may not be available on commercially reasonable terms or at all, pay ongoing royalties or become subject to injunctions requiring us to remove content, limit access to our platform or take other steps to prevent infringement, each of which could prevent us from pursuing some or all of our business and result in our users deferring or limiting their use of our platform, which could adversely affect our financial condition and results of operations.

Even if third-party claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our reputation, business and operating results. Moreover, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. We expect that the occurrence of infringement claims is likely to grow as the market for our content and platform grows. Accordingly, our exposure to damages resulting from infringement claims could increase, and this could further exhaust our financial and management resources.

Failure to obtain, maintain, protect and enforce our proprietary and intellectual property rights could adversely affect our business.

Our success depends to a significant degree on our ability to obtain, maintain, protect and enforce our proprietary information, intellectual property and technology, including our content, proprietary software

 

57


Table of Contents

technology, trademarks, domain names, know-how, our brands and similar intellectual property. We rely on a combination of copyrights, trademarks, trade secret laws, patents, service marks, contractual restrictions and other intellectual property laws in the U.S. and certain other jurisdictions, as well as confidentiality procedures and invention assignment agreements, to establish and protect our proprietary rights. However, copyrights, patent, trademark and trade secret protection may not be available to us in every country in which our platform is available. Further, any copyrights, patents, trademarks or other intellectual property rights that we have or may obtain may be challenged or circumvented by others or invalidated, declared generic or held unenforceable through administrative processes, including re-examination, inter partes review, interference and derivation proceedings and equivalent proceedings in foreign jurisdictions, such as opposition proceedings, or litigation. Our trademark applications and patents arising from any patent applications we may file in the future may not be granted and, even if we are successful in obtaining effective protection, it may be expensive to maintain these rights, including application and maintenance costs, and the time and cost required to defend our rights could be substantial. Additionally, the process of obtaining patent protection may be expensive and time-consuming, and we may be unable to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Moreover, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain.

We rely in part on trade secrets, proprietary know-how and other confidential information to maintain our competitive position. We attempt to protect our intellectual property, technology and confidential information by requiring our employees and other third parties who develop intellectual property on our behalf to enter into confidentiality and invention assignment agreements and third parties we share information with to enter into nondisclosure and confidentiality agreements or to be bound by professional, fiduciary or other contractual obligations requiring the applicable third party to protect our trade secrets, proprietary know-how and other confidential information. However, we cannot guarantee that we have entered into such agreements with each party who has developed intellectual property on our behalf and each party that has or may have had access to our confidential information, know-how or trade secrets, and such agreements may be insufficient or breached. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret or know-how is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, trade secrets and know-how can be difficult to protect and some courts inside and outside the U.S. are less willing or unwilling to protect trade secrets and know-how. Additionally, to the extent there are individuals not subject to invention assignment agreements, these individuals may make adverse ownership claims to our current and future intellectual property, and, to the extent that our employees, independent contractors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Failure to adequately protect, enforce and defend our rights in our proprietary and intellectual property rights could adversely affect our business.

The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. We utilize various means, including our proprietary technology Toon Radar, to prevent and monitor unauthorized use of our intellectual property. However, the steps we take to obtain, maintain, protect, defend and enforce our intellectual property rights may be inadequate. For example, it is possible that third parties, including our competitors, may obtain patents relating to technologies that overlap or compete with our platform and technology. If third parties obtain patent protection with respect to such technologies, they may assert that our platform and technology infringes their patents and seek to charge us a licensing fee or otherwise preclude the use of our platform and technology. We may not be able to protect our intellectual property rights if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property rights. If we fail to protect our intellectual property rights adequately, unauthorized third parties could copy and distribute our content. In addition, enforcing and defending our intellectual property rights might entail significant expense and may not ultimately be successful. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or intellectual property rights.

 

58


Table of Contents

The value of our intellectual property could diminish if others assert rights in or ownership of our copyrights, trademarks and other intellectual property rights, or use trademarks that are similar to our trademarks. We may be unable to successfully resolve these types of conflicts to our satisfaction. In some cases, litigation or other actions may be necessary to protect or enforce our copyrights, trademarks and other intellectual property rights. As we expand our global activities, our exposure to unauthorized copying and use of our content will likely increase. Moreover, policing unauthorized use of our content, technologies, trade secrets and intellectual property may be difficult, expensive and time-consuming. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights, which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.

We face risks associated with our “WEBTOON” trademark, trade name and service mark, which could adversely affect our business, including the value of our “WEBTOON” brand.

We face risks associated with our “WEBTOON” trademark, including the risk that the word “Webtoon” could become so commonly used that it becomes synonymous with the type of web-comics we display on our platform. In Korea, the “WEBTOON” wordmark has been declared generic and is not protectable as a registered trademark. In the U.S., although we have registered the “WEBTOON” wordmark and logo as trademarks in certain classes of goods and services in the U.S., we have not secured a wordmark registration in our key classes of goods and services. If we lose protection for the “WEBTOON” wordmark in the U.S., other parties could use the word “Webtoon” to refer to their own products, thus diminishing our “WEBTOON” brand. Further, if we lose protection for the “WEBTOON” wordmark, our competitors, such as KAKAO WEBTOON, may seek register trademarks or adopt service names similar to ours, or confusingly similar terms. If our efforts to oppose such registrations or use of names is unsuccessful, it could impede our ability to build brand identity and possibly lead to confusion in the marketplace. Over the long term, if we are unable to establish name recognition based on our trademarks, then we may not be able to compete effectively. Any claims or customer confusion related to our trademarks could damage our reputation and brands and substantially harm our business, financial condition and results of operation.

Our unregistered or future registered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition by potential users or creators in our markets of interest. Third parties may assert that we are using trademarks or trade names that are confusingly similar to their marks. If any third party were able to establish that our trademarks or trade names were infringing their marks, that third party may be able to block our ability to use the infringing trademark or trade name and we may be required to re-brand one or more of our products offered under the infringing trademark or trade name, which may require substantial time and monetary expenditure. In addition, if a third party were to bring such a claim, we would be required to dedicate time and resources to fight the claim, which time and resources could otherwise be used toward the maintenance of our own intellectual property.

Our intellectual property strategy may prove to be inadequate to protect our intellectual property rights.

We may choose not to pursue registrations in every jurisdiction or at all depending on the nature of the project to which the intellectual property rights pertain. For example, we make business decisions about when to seek copyright registrations for particular content and in what jurisdictions to seek trademark registrations, and the approach we select may ultimately prove to be inadequate. For example, we have chosen not to register copyrights in all of the content on our platform. In order to bring a copyright infringement lawsuit in the U.S., the applicable copyright must be registered and if a copyright is not registered within three months of the publication of the underlying work, there are limitations on the damages that the copyright owner may be awarded for infringement. Accordingly, the remedies and damages available to us for unauthorized use of certain content on our platform may be limited.

 

59


Table of Contents

We may not be able to protect our intellectual property rights throughout the world.

We may be required to protect our intellectual property rights in an increasing number of jurisdictions, a process that is expensive and may not be successful, or which we may not pursue in every jurisdiction due to costs, complexities or other reasons. Filing, prosecuting, maintaining, defending and enforcing intellectual property rights in our platform and business in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. Competitors may use our technologies in jurisdictions where we have not obtained intellectual property rights to develop their own technologies and services and, further, may export otherwise infringing, misappropriating or violating technologies and services to territories where we have intellectual property protection, but enforcement is not as strong as that in the U.S. These technologies and services may compete with our technologies and services, and our intellectual property rights may not be effective or sufficient to prevent them from competing.

In addition, the laws of some foreign countries may not be as protective of intellectual property rights as those in the U.S., and mechanisms for enforcement of intellectual property rights may be inadequate. Many companies have encountered significant challenges in establishing and enforcing their proprietary rights outside of the U.S. These challenges can be caused by the absence or inconsistency of the application of rules and methods for the establishment and enforcement of intellectual property rights outside of the U.S. In addition, the legal systems of some countries, particularly developing countries, do not favor the enforcement of intellectual property protection. This could make it difficult for us to stop the infringement, misappropriation or other violation of our intellectual property rights. Accordingly, we may choose not to seek protection in certain countries, and we will not have the benefit of protection in such countries. Proceedings to enforce our intellectual property rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by U.S. courts and foreign countries may affect our ability to obtain adequate protection for our products, services and other technologies and the enforcement of intellectual property rights. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition and results of operations.

Digital piracy and the sale of counterfeit merchandise could adversely affect our business.

As the copying and distribution of content over the internet proliferates, the risk of piracy, grey market sales, illegal downloading, file-sharing or other infringement, misappropriation and other violation of our intellectual property is likely to continue to increase. We take various measures to prevent and monitor unauthorized use of our content, including developing proprietary technology to detect piracy and other technological measures. Despite our precautions, unauthorized third parties have copied and distributed our content and sold merchandise and products based on our content and may continue to do so in the future. If we fail to obtain appropriate relief through the judicial process or the complete enforcement of judicial decisions issued in our favor (or if judicial decisions are not in our favor) or if we fail to develop effective means of protecting and enforcing our intellectual property (whether copyrights or other intellectual property rights such as patents, trademarks and trade secrets), our results of operations, financial position, reputation and prospects may suffer. In addition, we supply a wide variety of merchandise based on our content to our users and counterfeit versions of these products may be offered by competitors. If a significant number of our users turn to counterfeit products for reasons such as lower prices, our revenue and growth could be adversely affected. In addition, the quality of counterfeit products cannot be guaranteed, and poor quality or defects in such products would affect our reputation, which may materially and adversely affect our business, financial condition and operating results.

Our intellectual property rights in content on our platform are limited by the terms of our agreements with content creators.

We enter into agreements with certain content creators who seek to monetize their content, which define our relationship with such creators and our rights to use and exploit the content they create. In accordance with the

 

60


Table of Contents

terms of such agreements, creators generally receive upfront fees and various revenue shares based on the creators’ content, and we generally receive a certain period of exclusivity. However, once our exclusivity period ends, creators may be able to license their rights to third parties, including our competitors, which could diminish our brands and adversely affect our financial condition and competitive position. In addition, we may need the cooperation of a creator, as co-owner, to enforce our intellectual property rights against third parties and such cooperation may not be provided to us. For copyrights in which we retain partial ownership, we cannot be certain that activities such as the maintenance and prosecution of such copyrights by our creators, as co-owners, have been or will be conducted consistent with our best interests or in compliance with applicable laws and regulations. Although we attempt to protect our intellectual property by entering into such agreements with certain creators, such agreements may be insufficient or breached.

Disputes also may arise between us and creators regarding intellectual property subject to a content creator agreement, including:

 

   

the scope of rights granted under the agreement and other interpretation-related issues;

 

   

our financial and other obligations under the agreement;

 

   

whether to accept opportunities to license or otherwise grant rights to the content to third parties;

 

   

our right to negotiate independently with a potential licensee, studio, financier, distributor, producer and/or other potential purchaser of intellectual property rights in the content in our role as a publisher and/or producer; and

 

   

the ownership of intellectual property resulting from the joint use of intellectual property by creators and us.

Any termination of or disputes over our agreements with creators could result in the loss of our ability to distribute certain content on our platform. Further, we have not entered into such agreements with each party who has developed content that we distribute on our platform. To the extent that we have not entered into such an agreement with a creator, we do not have rights in the intellectual property of the content distributed on our platform, including copyrights.

We use open-source software on our platform, which may pose particular intellectual property risks to, and could adversely affect, our business.

We have in the past and may in the future continue to use open-source software in our codebase and our platform. Some open-source software licenses require users who make available open-source software as part of their proprietary software to publicly disclose all or part of the source code to such proprietary software or make available any derivative works of such software free of charge, under open-source licensing terms. The terms of various open-source licenses have not been interpreted by courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our use of the open-source software. Enforcement activity for open-source licenses can also be unpredictable. Were it determined that our use was not in compliance with a particular license, we may be required to purchase a costly license, publicly release the affected portions of our proprietary source code, defend claims, pay damages for breach of contract or copyright infringement, grant licenses to our proprietary software, re-engineer our platform, discontinue certain services or product offerings in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our product development efforts, any of which could negatively impact our business. Public release of our proprietary source code could allow our competitors to create similar technology with less development time and effort. Open-source compliance problems can also result in damage to reputation and challenges in recruitment or retention of engineering personnel. In addition to risks related to license requirements, use of certain open-source software can lead to greater risks than use of third-party commercial software, as open-source licensors generally do not provide warranties, indemnities or other contractual protections with respect to the software (for example, noninfringement or functionality). There

 

61


Table of Contents

is typically no support available for open-source software, and we cannot ensure that the authors of such open-source software will implement or push updates to address security risks or will not abandon further development and maintenance. Our use of open-source software may also present additional security risks because the source code for open-source software is publicly available, which may make it easier for hackers and other third parties to determine how to breach our apps or websites and systems that rely on open-source software. While we monitor our use of open-source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open-source agreement, such use could inadvertently occur, or could be alleged to have occurred, in part because open-source license terms are often ambiguous. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have an adverse effect on our business, financial condition and results of operations.

We may utilize artificial intelligence, which could expose us to liability or adversely affect our business.

From time to time, we may utilize artificial intelligence, machine learning, data analytics and similar tools that collect, aggregate and analyze data (collectively, “AI Tools”) in connection with our business. There are significant risks involved in utilizing AI Tools and no assurance can be provided that the usage of such AI Tools will enhance our business or assist our business in being more efficient or profitable. AI Tools may have errors or inadequacies that are not easily detectable. If AI Tools are incorrectly designed or the data used to train them is incomplete, inadequate or biased in some way, our use of AI Tools may inadvertently reduce our efficiency or cause unintentional or unexpected outputs that are incorrect, do not match our business goals, do not comply with our policies or interfere with the performance of our platform, services, business and reputation. Additionally, our reliance on AI Tools could pose ethical concerns and lead to a lack of human oversight and control, which could have negative implications for our organization.

In addition, the use of AI Tools may enhance intellectual property, cybersecurity, operational and technological risks. Regulation of AI Tools is rapidly evolving worldwide as legislation and regulators are increasingly focusing on these powerful emerging technologies. The technologies underlying AI Tools and their use cases are subject to a variety of laws, including intellectual property, privacy, data protection and cybersecurity, consumer protection, competition and equal opportunity laws, and are expected to be subject to increased regulation in the near future. If we do not have sufficient rights to use the data or other material or content on which AI Tools rely, we may incur liability through the violation of such laws, third-party intellectual property, privacy or other rights, or contracts to which we are a party. See “Risk Factors—Risks Related to Intellectual Property—Failure to obtain, maintain, protect and enforce our proprietary and intellectual property rights could adversely affect our business.” Furthermore, the technologies underlying AI Tools are complex and rapidly developing, and as a result, it is not possible to predict all of the legal, operational or technological risks related to the use of AI Tools. Moreover, AI Tools are the subject of evolving review by various governmental and regulatory agencies, including the SEC and the FTC, and changes in laws, rules, directives and regulations governing the use of AI Tools may adversely affect the ability of our business to use AI Tools. Further, we cannot guarantee that creators do not use artificial intelligence in connection with their creation of content distributed on our platform and such content may infringe, misappropriate or otherwise violate the rights of third parties.

Risks Related to Doing Business in Korea

There are special risks involved with investing in companies operating in Korea, including the possibility of restrictions being imposed by the Korean government in emergency circumstances, accounting and corporate disclosure standards that differ from those in other jurisdictions, and the risk of direct or vicarious criminal liability for executive officers of our Korean affiliates.

Our wholly-owned subsidiary, NAVER WEBTOON, is a Korean company, and NAVER WEBTOON and our other Korean subsidiaries, which represent a substantial portion of our total revenues, operate in a business and cultural environment that is different from that of other countries. For example, under the Foreign Exchange Transaction Act of Korea, if the Korean government determines that in certain emergency circumstances,

 

62


Table of Contents

including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or substantial disturbance in the Korean financial and capital markets are likely to occur, it may impose any necessary restriction such as requiring Korean or foreign investors to obtain prior approval from the Minister of Economy and Finance of Korea prior to entering into a capital markets transaction, repatriating interest, dividends or sales proceeds arising from Korean securities or from the disposition of such securities or other transactions involving foreign exchange. Although investors will hold shares of our common stock, our Korean affiliates may experience adverse risks, which and in turn could adversely affect our business, prospects, financial condition and results of operations and could lead to a decline in the value of our common stock.

In addition, under Korean law, there are circumstances in which certain executive officers of a company may be investigated or held criminally liable either directly or vicariously for the actions of the company and its executives and employees. For example, complaints alleging infringement, misappropriation or other violation of intellectual property rights, breaches of certain Korean laws (e.g., labor standards laws and fair-trade laws) and product-related claims may be investigated and prosecuted as criminal offenses with both the company and the company’s executive officers being named as defendants in such proceedings. These risks change over time.

As a result of these current and changing risks, our Korean subsidiaries’ executive officers have in the past been named, and may be named in the future, in criminal investigations or proceedings stemming from our operations. If our Korean affiliates’ executive officers were to be named in such criminal proceedings or held either directly or vicariously criminally liable for the actions of the company and its executives and employees, our business, financial condition and results of operations could be adversely affected.

NAVER WEBTOON’s transactions with its subsidiaries and affiliates may be restricted under Korean fair trade regulations.

NAVER WEBTOON enters into business relationships and transactions with its subsidiaries and affiliates, which are subject to scrutiny by the Korean Fair Trade Commission (“KFTC”) as to, among other things, whether such relationships and transactions constitute undue financial support among companies in the same business group. If, in the future, the KFTC determines that NAVER WEBTOON has engaged in transactions that violate the fair trade laws and regulations, it may be subject to an administrative and criminal fine, surcharge or other actions, which could adversely affect our business, financial condition and results of operations.

NAVER WEBTOON is subject to certain requirements and restrictions under Korean law that may, in certain circumstances, require it to act in a manner that may create conflicts of interest or the appearance of conflicts of interest with WEBTOON, as its parent, or our stockholders.

Under applicable Korean law, directors of a Korean company, such as NAVER WEBTOON, owe a fiduciary duty to the company as a whole rather than a certain group of stakeholders such as its shareholders. As a result, if circumstances arise in which the interests of NAVER WEBTOON may or appear to conflict with the interests of WEBTOON, as its parent, or our stockholders, NAVER WEBTOON may not be permitted under applicable Korean law to act in a manner that is in the best interest of WEBTOON, as its parent, or our stockholders. For example, providing guarantees or collateral by NAVER WEBTOON in favor of WEBTOON, as its parent without a justifiable cause and on other than an arm’s length terms could be deemed a breach of a fiduciary duty by the directors of NAVER WEBTOON. Since a material portion of our operations are conducted by our Korean subsidiary, NAVER WEBTOON, any such occurrence with respect to NAVER WEBTOON or other Korean subsidiaries could adversely affect our business, financial condition and results of operations.

NAVER WEBTOON’s transactions with related parties are subject to close scrutiny by the Korean tax authorities, which may result in adverse tax consequences.

Under Korean tax law, there is an inherent risk that any of NAVER WEBTOON’s transactions with the Company as a parent company, any of its other affiliates or any other person or company that is related to

 

63


Table of Contents

NAVER WEBTOON may be challenged by the Korean tax authorities if such transaction is viewed as having been made on terms that were not on an arm’s-length basis. If the Korean tax authorities determine that such transaction was not made on arm’s-length terms, NAVER WEBTOON may not be permitted to deduct as expenses, or may be required to include as taxable income, any amount which is found to be undue financial support between related parties in such transaction, which may have adverse tax consequences for NAVER WEBTOON and, in turn, may adversely affect our business, financial condition and results of operations.

As NAVER WEBTOON and many of our affiliates are incorporated in Korea, it may be more difficult to enforce any judgments against such Korean subsidiaries or affiliates obtained in courts outside Korea.

Many of our subsidiaries and affiliates, including NAVER WEBTOON, are incorporated in Korea and most of their directors and executive officers reside in Korea. As a result, a substantial majority of their assets are located in Korea. As a result, it may be practically difficult for us or our stockholders to effect service of process in the U.S. upon NAVER WEBTOON or other Korean affiliates or any of their directors and executive officers or to enforce against those companies or their directors or executive officers any judgment obtained in a court in the U.S. which is predicated upon civil liability provisions of the federal or state securities laws of the U.S. or similar judgments obtained in other courts outside Korea.

Risks Related to This Offering and Ownership of our Common Stock

NAVER controls a significant percentage of our voting power and may have interests that conflict with the interests of other stockholders.

Upon completion of this offering, NAVER will beneficially own approximately  % of the total voting power of our outstanding shares of common stock (or   % if the underwriters exercise in full their option to purchase additional shares of our common stock to cover over-allotments). As long as NAVER beneficially owns a majority of the total voting power of our outstanding shares of common stock, investors in this offering will not be able to affect the outcome of any matter submitted to our stockholders for approval and NAVER will generally be able to control, whether directly or indirectly through its ability to elect and remove directors, and subject to applicable law, all matters affecting us without the approval of other stockholders, including:

 

   

determinations with respect to our business direction and policies, including the election and removal of directors and the appointment and removal of officers;

 

   

determinations with respect to corporate transactions, such as mergers, business combinations or dispositions of assets;

 

   

our financing and dividend policies;

 

   

our compensation and benefit programs and other human resources policy decisions;

 

   

determinations with respect to tax matters; and

 

   

changes to any other agreements that may adversely affect us.

If NAVER does not dispose of its remaining equity interest in our company, or if NAVER purchases shares of our common stock in the open market following the completion of this offering, it could remain our controlling stockholder for an extended period of time or indefinitely. Even if NAVER were to beneficially own less than a majority of the total voting power of our outstanding shares of common stock, NAVER may be able to influence the outcome of corporate actions requiring stockholder approval for as long as it owns a significant portion of our common stock. NAVER’s interests may not be the same as, or may conflict with, the interests of our other stockholders. Actions that NAVER takes with respect to us, as a controlling or significant stockholder, may not be favorable to us or our other stockholders.

 

64


Table of Contents

Following the completion of this offering, we will be a “controlled company” and, as a result, will qualify for exemptions from certain corporate governance requirements.

Upon completion of this offering, NAVER will beneficially own approximately  % of the total voting power of our outstanding shares of common stock (or   % if the underwriters exercise in full their option to purchase additional shares of our common stock to cover over-allotments). As a result, we will be a “controlled company” and, therefore, will qualify for exemptions from certain corporate governance requirements, including:

 

   

the requirement that the Board be composed of a majority of independent directors;

 

   

the requirement that the Nominating and Corporate Governance Committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities or, if no such committee exists, that our director nominees be selected or recommended by independent directors constituting a majority of the Board’s independent directors in a vote in which only independent directors participate;

 

   

the requirement that the Compensation Committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the Nominating and Governance Committee and the Compensation Committee.

Upon completion of this offering, we intend to utilize these exemptions. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the stock exchange corporate governance requirements.

Taking advantage of the reduced disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive to investors.

We are treated as an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage of certain reduced reporting and other requirements that are otherwise applicable generally to public companies. Pursuant to these reduced disclosure requirements, emerging growth companies are not required to, among other things, comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, provide certain disclosures regarding executive compensation, holding stockholder advisory votes on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved. In addition, emerging growth companies have longer phase-in periods for the adoption of new or revised financial accounting. We ceased to be an emerging growth company as of the end of fiscal year 2023 because our annual gross revenues exceeded $1.235 billion for that fiscal year. However, we will continue to be treated as an emerging growth company for disclosure purposes in this prospectus until the earlier of the completion of our initial public offering or the end of the one-year period beginning on December 31, 2023.

We intend to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act, until we are no longer an emerging growth company. If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act. Our election to use the phase-in periods permitted by this election may make it difficult to compare our consolidated financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our common stock price may be more volatile. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.

 

65


Table of Contents

We cannot be certain that an active trading market for our common stock will develop or be sustained following the completion of this offering.

Prior to the completion of this offering, there has been no public market for our common stock. We cannot assure you that an active trading market for shares of our common stock will develop or be sustained following the completion of this offering. If an active and liquid trading market does not develop, you may have difficulty selling or may not be able to sell any of your shares of our common stock at an attractive price or at all. An inactive trading market could also impair our ability to raise capital by selling shares of our common stock, our ability to attract and motivate our employees through equity incentive awards and our ability to acquire businesses, brands, assets or technologies by using shares of our common stock as consideration. Furthermore, the liquidity of the market for shares of our common stock may be constrained for as long as NAVER continues to own a significant portion of our common stock.

The stock price of our common stock may fluctuate significantly.

We cannot predict the prices at which shares of our common stock may trade after this offering. The price for shares of our common stock in this offering was determined by negotiations among us and representatives of the underwriters, and it may not be indicative of prices that will prevail in the open market following the completion of this offering. Consequently, you may not be able to sell your shares of our common stock at or above the initial public offering price at the time that you would like to sell.

The market price of shares of our common stock may be highly volatile and fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

 

   

changes in laws or regulations applicable to our industry or offerings;

 

   

speculation about our business in the press or the investment community;

 

   

price and volume fluctuations in the overall stock market;

 

   

volatility in the market price and trading volume of companies in our industry or companies that investors consider comparable;

 

   

share price and volume fluctuations attributable to inconsistent trading levels of our shares;

 

   

our ability to protect our intellectual property and other proprietary rights and to operate our business without infringing, misappropriating or otherwise violating the intellectual property and other proprietary rights of others;

 

   

sales of our common stock by us or our significant stockholders, officers and directors;

 

   

the expiration of contractual lock-up agreements;

 

   

the development and sustainability of an active trading market for our common stock;

 

   

success of competitive products or services;

 

   

the public’s response to press releases or other public announcements by us or others, including our filings with the SEC, announcements relating to litigation or significant changes to our key personnel;

 

   

the effectiveness of our internal controls over financial reporting;

 

   

changes in our capital structure, such as future issuances of debt or equity securities;

 

   

our entry into new markets;

 

   

tax developments in the U.S., Europe or other markets;

 

   

strategic actions by us or our competitors, such as acquisitions or restructurings;

 

   

changes in accounting principles;

 

66


Table of Contents
   

litigation or governmental investigations initiated against us;

 

   

reputational issues, including reputations issues involving our competitors and their products, NAVER and our third-party partners;

 

   

overall market fluctuations and domestic and worldwide economic and political conditions, including related to geopolitical issues or the COVID-19 pandemic; and

 

   

other factors described in this “Risk Factors” section and elsewhere in this prospectus.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock. If any of the forgoing events occur, it could cause our stock price to fall and may expose us to lawsuits, including securities class action litigation, that, even if unsuccessful, could result in substantial costs and divert our management’s attention and resources. You should consider an investment in shares of our common stock to be risky, and you should invest in shares of our common stock only if you can withstand a significant loss and wide fluctuations in the market value of your investment.

We have identified certain material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we experience additional material weaknesses or otherwise are unable to implement and maintain effective internal control over financial reporting in the future, investors could lose confidence in the accuracy and completeness of our financial reports and the market price of shares of our common stock could be adversely affected.

Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and, beginning the first full fiscal year after the completion of this offering, provide an annual management report on the effectiveness of internal control over financial reporting, to which our independent registered public accounting firm will need to attest in accordance with guidelines set forth by the Public Company Accounting Oversight Board (“PCAOB”) after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. We may in the future identify material weaknesses when evaluating our internal control over financial reporting that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act.

As part of our readiness efforts for future compliance with Section 404 of the Sarbanes-Oxley Act we have identified certain material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses are as follows:

 

   

The Company did not design and maintain an effective control environment commensurate with its financial reporting requirements. Specifically, the Company lacked a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training to appropriately analyze, record and disclose accounting matters timely and accurately. This material weakness contributed to the following additional material weaknesses:

 

   

The Company did not design and maintain effective controls related to the period-end financial reporting process, including designing and maintaining formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures. Additionally, the Company did not design and maintain controls over the preparation and review of account reconciliations.

 

   

The Company did not design and maintain effective controls over information technology (“IT”) general controls for information systems that are relevant to the preparation of its financial statements

 

67


Table of Contents
 

at certain locations. Specifically, the Company did not design and maintain (i) program change management controls for financial systems to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user access to financial applications, databases and operating systems to appropriate company personnel; and (iii) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.

 

   

The Company did not design and maintain effective controls related to segregation of duties at certain locations.

These material weaknesses resulted in material audit adjustments to the consolidated financial statements as of and for the years ended December 31, 2023 and December 31, 2022. Additionally, these material weaknesses could result in a misstatement of substantially all of the Company’s accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

In addition to the material weaknesses discussed above, we also identified a certain material weakness in the design and maintenance of controls to validate reliability of information from a third-party service provider used in the recording of revenue and revenue-related transactions at the parent and two subsidiaries. In response to this material weakness, we implemented and operated manual controls to validate information supplied by the third-party service provider. As a result of such efforts, we believe the material weakness has been remediated as of December 31, 2023. Our completion of the remediation of this material weakness does not provide assurance that the remediation or other controls will continue to operate effectively in the future.

Our remediation efforts of the outstanding material weaknesses are ongoing. We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the internal control deficiencies that led to our material weaknesses, that the material weaknesses will be remediated on a timely basis, or that additional material weaknesses will not be identified in the future. If the steps we take do not remediate the outstanding material weaknesses in a timely manner, there could continue to be a possibility that these control deficiencies or others could result in a material misstatement of our annual or interim consolidated financial statements. Further, our current internal control over financial reporting and any additional internal control over financial reporting that we develop may become inadequate because of changes in conditions in our business. Additionally, weaknesses in our disclosure controls and procedures and internal control over financial reporting may be discovered in the future.

The process of designing and implementing internal control over financial reporting required to comply with the disclosure and attestation requirements of Section 404 of the Sarbanes-Oxley Act will be time consuming and costly. If during the evaluation and testing process we identify additional material weaknesses in our internal control over financial reporting or determine that these existing material weaknesses have not been remediated, our management will be unable to assert that our internal control over financial reporting is effective. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal control over financial reporting. If we are unable to assert that our internal control over financial reporting is effective, or when required in the future, if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected, and we could become subject to litigation or investigations by the stock exchange on which our common stock is listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

 

68


Table of Contents

The obligations associated with being a standalone public company will require significant resources and management attention.

Following the effectiveness of the registration statement of which this prospectus is a part, we will be directly subject to reporting and other obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations of the SEC and the applicable stock exchange. As a standalone public company, we will be required to:

 

   

prepare and distribute periodic reports, proxy statements and other stockholder communications in compliance with the federal securities laws and rules;

 

   

have our own board of directors and committees thereof, which comply with federal securities laws and rules and applicable stock exchange requirements;

 

   

maintain an internal audit function;

 

   

institute our own financial reporting and disclosure compliance functions;

 

   

establish an investor relations function; and

 

   

establish internal policies, including those relating to trading in our securities and disclosure controls and procedures.

These reporting and other obligations will place significant demands on our management, diverting their time and attention from sales-generating activities to compliance activities, and require increased administrative and operational costs and expenses that we did not incur as a private company, which could adversely affect our business, financial condition or results of operations.

If you purchase shares of our common stock sold in this offering, you will incur immediate and substantial dilution.

If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution in the amount of $    per share because the initial public offering price will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock. This dilution would result because our earlier investors paid substantially less than the initial public offering price when they purchased their shares. In addition, you may also experience additional dilution upon future equity issuances, the exercise of stock options to purchase common stock granted to our employees and directors under our stock option and equity incentive plans or the exercise of warrants to purchase common stock. See “Dilution.”

We are a holding company and our only material assets are our equity interests in our subsidiaries. As a consequence, we depend on the ability of our subsidiaries to pay dividends and make other payments and distributions to us in order to meet our obligations.

We are a holding company with limited direct business operations. Our subsidiaries own substantially all of our assets and conduct substantially all of our operations. As a consequence, we depend on, among other things, dividends from our subsidiaries and permitted payments to us under arrangements with our subsidiaries to meet our obligations. These obligations include operating expenses and interest and principal on current and any future borrowings. Our subsidiaries, including certain subsidiaries organized outside the U.S., may not be able to, or may not be permitted under the applicable laws of the jurisdiction of their organization to, pay dividends or make distributions or loans to enable us to meet our obligations. Each subsidiary is a distinct legal entity and, under certain circumstances, legal, tax and contractual restrictions may limit our ability to obtain cash from our subsidiaries. If the cash we receive from our subsidiaries pursuant to dividends and other arrangements is insufficient to fund any of our obligations, or if a subsidiary is unable to pay future dividends or distributions to us to meet our obligations, we may be required to raise cash through, among other things, the incurrence of debt (including convertible or exchangeable debt), the sale of assets or the issuance of equity. Our liquidity and capital

 

69


Table of Contents

position are highly dependent on the performance of our subsidiaries and their ability to pay future dividends and distributions to us as anticipated. The evaluation of future dividend sources and our overall liquidity plans are subject to a variety of factors, including current and future market conditions, which are subject to change.

We do not intend to pay any cash distributions or dividends on our common stock in the foreseeable future.

We currently intend to retain any future earnings and do not expect to pay any cash distributions or dividends in the foreseeable future. Any future determination to declare cash distributions or dividends will be made at the discretion of our board of directors, subject to applicable laws and provisions of our organizational documents, after taking into account our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. As a result, capital appreciation in the price of our common stock, if any, may be your only source of gain on an investment in our common stock. See “Dividend Policy.”

Future sales of our common stock, or the perception that such sales may occur, could depress our common stock price.

Sales of a substantial number of shares of our common stock in the public market following this offering, or the perception that such sales may occur, could depress the market price of our common stock. Our executive officers and directors and certain of our equity holders have agreed with the underwriters not to offer, sell, dispose of or hedge any shares of our common stock or any options or warrants to purchase any shares of our common stock, or securities convertible into, exchangeable for, or that represent the right to receive, shares of our common stock, subject to specified limited exceptions described elsewhere in this prospectus, during the period ending 180 days after the date of the final prospectus, except with the prior written consent of Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC. Our Amended Charter will authorize us to issue up to   of our authorized shares of common stock, of which shares     of common stock will be outstanding. All shares of our common stock will be subject to the lock-up agreements or market stand-off provisions described under “Shares Eligible for Future Sale.” Shares of our common stock held by our affiliates will continue to be subject to the volume and other restrictions of Rule 144 under the Securities Act. Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC may, in their sole discretion and at any time without notice, release all or any portion of the shares subject to the lock-up. See “Underwriting.”

Upon the completion of this offering, the holders of an aggregate of   shares of our common stock, based on shares of common stock outstanding as of the date of effectiveness of this registration statement, or their transferees, will be entitled to rights with respect to the registration of their shares under the Securities Act. In addition, immediately following this offering, we intend to file a registration statement registering under the Securities Act the shares of common stock reserved for issuance under the 2024 Plan. See the information under the heading “Shares Eligible for Future Sale” for a more detailed description of the shares that will be available for future sales upon completion of this offering. Sales of our common stock pursuant to these registration rights or this registration statement may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our common stock.

The price of our common stock could decline if securities analysts do not publish research or if securities analysts or other third parties publish inaccurate or unfavorable research about us.

The trading of our common stock is likely to be influenced by the reports and research that industry or securities analysts publish about us, our business, our market or our competitors. We do not currently have and may never obtain research coverage by securities or industry analysts. If no securities or industry analysts commence coverage of our Company, the trading price for our common stock would be negatively affected. If we obtain securities or industry analyst coverage but one or more analysts downgrade our common stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or

 

70


Table of Contents

more securities or industry analysts cease to cover the Company or fail to regularly publish reports on us, we could lose visibility in the financial markets which, in turn, could cause our stock price or trading volume to decline.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.

Anti-takeover provisions in our governing documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Our Amended Charter, Amended Bylaws and Delaware law contain or will contain provisions that could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Among other things, our Amended Charter or Amended Bylaws will include the following provisions:

 

   

authorizing “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt;

 

   

providing for a classified board of directors with staggered, three-year terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

limiting the ability of stockholders to call a special stockholder meeting;

 

   

prohibiting stockholders from acting by written consent at any time when NAVER beneficially owns, in the aggregate, less than 35% in voting power of our common stock;

 

   

establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings;

 

   

at any time when NAVER owns, in the aggregate, less than 35% in voting power of our stock entitled to vote generally in the election of directors, the removal of directors other than NAVER Group Directors and LY Group Directors (as each of these terms is defined in our Amended Charter) only for cause and only upon the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of common stock of the Company entitled to vote thereon;

 

   

providing that our board of directors is expressly authorized to amend, alter, rescind or repeal our Amended Bylaws; and

 

   

at any time when NAVER beneficially owns, in the aggregate, less than 50% in our voting power entitled to vote generally in the election of directors (the “Trigger Event”), requiring the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of common

 

71


Table of Contents
 

stock to amend provisions of our Amended Charter relating to the management of our business, our board of directors, stockholder action by written consent, calling special meetings of stockholders, competition and corporate opportunities, Section 203 of the Delaware General Corporation Law (the “DGCL”), forum selection and the liability of our directors, or to amend, alter, rescind or repeal our Amended Bylaws.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. We have opted out of Section 203 of the DGCL. However, our Amended Charter will contain similar provisions providing that, subject to certain exceptions, we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the stockholder became an interested stockholder, unless (i) prior to the time such stockholder became an interested stockholder, the board approved the transaction that resulted in such stockholder becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in such stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares, or (iii) following board approval, the business combination receives the approval of the holders of at least 66 2/3% of our outstanding voting stock not held by such interested stockholder at an annual or special meeting of stockholders. Our Amended Charter will provide that NAVER or LY Corporation or any of their current or future affiliates, any direct or indirect transferees of NAVER or any of their current or future affiliates, or any group as to which such persons are a party, do not constitute “interested stockholders” for purposes of this provision.

Any provision of our Amended Charter, Amended Bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. See “Description of Capital Stock—Anti-Takeover Effects of Delaware Law, Our Amended Charter and Our Amended Bylaws.”

Our Amended Charter will designate specific courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ abilities to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our Amended Charter will provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum, to the fullest extent permitted by law, for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a duty (including any fiduciary duty) by, or other wrongdoing by, any of our current or former director, officer, employee, agent or stockholder to us or to our stockholders, (3) any action asserting a claim against us or any of our current or former director, officer, employee, agent, or stockholder arising out of or relating to any provision of the DGCL, our Amended Charter or our Amended Bylaws (as either may be amended and/or restated from time to time), (4) any action to interpret, apply, enforce or determine the validity of our Amended Charter or our Amended Bylaws, (5) any action asserting a claim against us or any of our current or former director, officer, employee, agent or stockholder governed by the internal affairs doctrine or (6) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL shall be the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) and any appellate court therefrom (the “Delaware Forum Provision”). Notwithstanding the foregoing, our Amended Charter will provide that the Delaware Forum Provision will not apply to any action or proceeding asserting a claim under the Securities Act of 1933, as amended (the “Securities Act”). Further, our Amended Charter will provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act against us or any of our director, officer, employee or agent (the “Federal Forum Provision”).

 

72


Table of Contents

The Delaware Forum Provision and the Federal Forum Provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the Delaware Forum Provision or the Federal Forum Provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations. Any person or entity purchasing or otherwise acquiring any interest in our shares of capital stock shall be deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision, but will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

 

73


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements, which do not relate strictly to historical or current facts and which reflect management’s assumptions, views, plans objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding:

 

   

expected operating results, such as revenue growth and earnings;

 

   

economic and industry trends;

 

   

the demand for our platform in general;

 

   

our ability to continue to attract and empower creators to create engaging content;

 

   

our ability to grow and retain our user base and strengthen our brand;

 

   

our ability to increase engagement with users and strengthen our community;

 

   

our ability to attract and retain senior management team or key personnel;

 

   

our ability to continue to innovate and expand our advertising business;

 

   

our ability to increase paying ratio and strengthen our monetization capability;

 

   

our ability to increase revenues from our intellectual property operations;

 

   

our beliefs about and objectives for future operation;

 

   

future acquisitions or investments;

 

   

our ability to continue to grow across our current markets and expand into new markets;

 

   

our ability to continue to innovate and enhance our offerings;

 

   

the functionality and economics of our platform on mobile operating systems;

 

   

our ability to maintain the security and availability of our platform;

 

   

our ability to obtain, maintain, protect and enhance our intellectual property;

 

   

the increased expenses associated with being a public company;

 

   

our business model and expectations and management of future growth, including expansion in international markets and expenditures associated with such growth; and

 

   

our ability to compete with existing and new competitors in existing and new markets.

Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to risks, uncertainties and changes that are difficult to predict and many of which are outside of our control. You should realize that if underlying assumptions prove inaccurate, or known or unknown risks or uncertainties materialize, our actual results and financial condition could vary materially from expectations and projections expressed or implied in our forward-looking statements. Risks and uncertainties include:

 

   

we have experienced rapid growth in recent periods, and our historical growth rates may not be indicative of our future performance;

 

   

our growth depends on our ability to attract and empower creators and our ability to properly support and incentivize our creators to create compelling, engaging and interactive content;

 

74


Table of Contents
   

our growth depends on our ability to retain, attract and engage with our users, and our ability to anticipate, understand and respond appropriately to market trends and rapidly changing user preferences in a timely manner;

 

   

if we fail to retain or increase our paying users or if we fail to maintain or continue to increase our paying ratio, our business, financial condition or results of operations could be adversely affected;

 

   

we operate in highly competitive markets, and we face significant competition to attract and empower our creators and users;

 

   

maintaining and enhancing the market recognition and reputation of our brands is a critical component of our relationship with creators, users and other third parties;

 

   

our growth depends on our ability to innovate and expand our advertising business and to develop effective advertising products;

 

   

we intend to continue to diversify our monetization strategy and increase revenues from IP Adaptations, which may not be successful;

 

   

we intend to continue to expand our presence in existing and into new geographic markets and execute upon our growth initiatives, and our international expansion efforts may not be successful;

 

   

we face a variety of risks associated with conducting business around the world, and these risks will increase as we continue to expand our presence into new geographic markets;

 

   

our future growth depends on our ability to continue innovating our platform to offer attractive features and safe and civil experiences for our creators and users;

 

   

we depend on effectively operating with mobile operating systems, hardware, technologies, products, standards and networks that we do not control, and changes to any of these or our platform could adversely affect our user retention, growth, engagement and monetization;

 

   

we have a history of net losses, and we anticipate increasing expenses in the future, and we may not achieve or maintain profitability;

 

   

if we fail to control our content-related costs, the expenses we incur may exceed the increase in revenues;

 

   

the future success of our business relies heavily on our sales and marketing efforts, and if we fail to maintain sales and marketing efficiency, the marketing expenses we incur as we grow may exceed the increase in revenues;

 

   

we are, and could become, subject to significant legal proceedings and regulatory investigations that may result in significant expenses, fines and reputational damage;

 

   

the success of our growth strategy depends on our ability to provide a safe online environment for children;

 

   

we are subject to complex and evolving federal, state and international laws, regulations, rules, standards and contractual obligations regarding privacy, data protection and cybersecurity, which could result in investigations, claims, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could adversely affect our business;

 

   

claims by others that we infringe, misappropriate or otherwise violate their intellectual property rights through the activities of our creators or users or the content on our platform could subject us to liability;

 

   

our defenses to claims of infringement, misappropriation or other violations of third-party intellectual property rights are costly and may not be successful;

 

   

failure to obtain, maintain, protect and enforce our proprietary and intellectual property rights could adversely affect our business;

 

75


Table of Contents
   

there are special risks involved with investing in companies operating in Korea, including the possibility of restrictions being imposed by the Korean government in emergency circumstances, accounting and corporate disclosure standards that differ from those in other jurisdictions, and the risk of direct or vicarious criminal liability for executive officers of our Korean affiliates;

 

   

NAVER WEBTOON’s transactions with its subsidiaries and affiliates may be restricted under Korean fair trade regulations;

 

   

NAVER controls a significant percentage of our voting power and may have interests that conflict with the interests of other stockholders;

 

   

following the completion of this offering, we will be a “controlled company” and, as a result, will qualify for exemptions from certain corporate governance requirements; and

 

   

taking advantage of the reduced disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive to investors.

You should also carefully read the risk factors described in the section of this prospectus entitled “Risk Factors” for a description of the material risks that could, among other things, cause our actual results to differ materially from those expressed or implied in our forward-looking statements. You should understand that it is not possible to predict or identify all such factors and you should not consider the risks described above to be a complete statement of all potential risks and uncertainties. We do not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments, except as required by law.

 

76


Table of Contents

USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $   (or $   if the underwriters exercise in full their option to purchase additional shares of common stock to cover over-allotments) based on the assumed initial public offering price of $   per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering. For more information, see “Underwriting.”

Each $1.00 increase (decrease) in the assumed initial public offering price of $   per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $   , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering. Similarly, each increase (decrease) of    shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $   , assuming that the assumed initial public offering price per share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering.

The principal purpose of this offering is to increase our capitalization and financial flexibility and create a public market for our common stock. We intend to use the net proceeds from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. We cannot specify with certainty all of the particular uses for the remaining net proceeds to us from this offering.

 

77


Table of Contents

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock, and we currently do not anticipate paying any cash distributions or dividends after this offering and for the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used for working capital, to support our operations and to finance the growth and development of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including restrictions in our future debt instruments, our future earnings, capital requirements, financial condition, prospects and applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits.

As a holding company, our ability to pay cash distributions or dividends depends on our receipt of cash distributions or dividends from our operating subsidiaries. Our ability to pay cash distributions or dividends may be restricted as a result of restrictions on operating subsidiaries’ ability to pay cash distributions or dividends to us, including, but not limited to, as a result of local law restrictions or regulations or under agreement governing future indebtedness.

 

78


Table of Contents

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2024.

 

   

on an actual basis; and

 

   

on an as adjusted basis to reflect the filing and effectiveness of our Amended Charter, the Stock Split, the sale and issuance by us of    shares of our common stock in this offering at an assumed initial public offering price of $    per share (which is the midpoint of the range set forth on the cover of this prospectus), and the application of net proceeds from this offering as described under “Use of Proceeds,” as if this offering and the application of the net proceeds of this offering had occurred on March 31, 2024.

You should read this table together with the sections of this prospectus captioned “Summary Consolidated Financial and Other Data,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock” and our audited consolidated financial statements and related notes included elsewhere in this prospectus.

 

     As of March 31, 2024  

(in thousands of USD, except share and per share data)

   Actual      As Adjusted(1)  

Cash and cash equivalents

   $ 218,670      $        
  

 

 

    

 

 

 

Stockholders’ equity(2) (3)

     

Common stock, $0.01 par value per share; 5,000,000 shares authorized, 3,650,172 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, as adjusted

     36         

Common stock, $0.0001 par value per share; no shares authorized, no shares issued and outstanding, actual; 2,000,000,000 shares authorized,      shares issued and outstanding, as adjusted

         

Preferred stock, $0.0001 par value per share; no shares authorized, no shares issued and outstanding, actual; 100,000,000 shares authorized, no shares issued and outstanding, as adjusted

         

Additional paid-in capital

     1,668,342     

Accumulated other comprehensive loss

     (83,522   

Accumulated deficit

     (357,100   
  

 

 

    

 

 

 

Total stockholders’ equity attributable to WEBTOON Entertainment Inc.

   $ 1,227,756      $    

Non-controlling interests in consolidated subsidiaries

   $ 53,461     
  

 

 

    

 

 

 

Total equity

   $ 1,281,217     
  

 

 

    

 

 

 

Total capitalization

   $ 1,281,217      $    
  

 

 

    

 

 

 

 

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $    per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $    , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us in

 

79


Table of Contents
  connection with this offering. Similarly, each increase (decrease) of    shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $    , assuming that the assumed initial public offering price per share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering.
(2)

The actual number of shares of common stock does not give effect to the Stock Split to be effected after the effectiveness of the registration statement of which this prospectus forms a part and before the completion of this offering.

(3)

Prior to the filing and effectiveness of our Amended Charter, our authorized capital stock will consist of 5,000,000 shares of common stock, par value $0.01 per share. Upon the filing and effectiveness of our Amended Charter, our authorized capital stock will consist of 2,000,000,000 shares of common stock, par value $0.0001 per share, and 100,000,000 shares of preferred stock, par value $0.0001 per share.

The as adjusted number of shares of common stock to be outstanding following this offering excludes     % of shares of common stock outstanding at the closing of this offering (on a fully diluted basis) that are reserved for future grants or for sale under the 2024 Plan.

 

80


Table of Contents

DILUTION

Investors purchasing our common stock in this offering will experience immediate and substantial dilution in the pro forma as adjusted net tangible book value of their shares of common stock. Dilution in pro forma as adjusted net tangible book value represents the difference between the initial public offering price of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after the offering.

Historical net tangible book value per share represents our total tangible assets (total assets excluding goodwill and other intangible assets, net) less total liabilities, divided by the number of shares of outstanding common stock. After giving effect to (1) the filing and effectiveness of our Amended Charter immediately prior to the consummation of this offering, (2) the Stock Split and (3) the sale of shares of common stock in this offering by the Company at an assumed initial public offering price of $    per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, the pro forma as adjusted net tangible book value as of March 31, 2024, would have been approximately $    million, or $     per share of common stock. This represents an immediate decrease in pro forma as adjusted net tangible book value of $    per share to our existing stockholders and an immediate dilution of $    per share to new investors purchasing common stock in this offering.

The following table illustrates this dilution on a per share basis to new investors.

 

Assumed initial public offering price per share

      $       

Historical net tangible book value per share as of March 31, 2024

   $          

Pro forma decrease in net tangible book value per share as of March 31, 2024

   $       
  

 

 

    

Pro forma net tangible book value per share as of March 31, 2024

   $       

Increase in net tangible book value per share attributable to investors participating in this offering

   $       
  

 

 

    

Pro forma as adjusted net tangible book value per share, as adjusted to give effect to this offering

   $       

Dilution per share to new investors participating in this offering

      $    
     

 

 

 

The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. Each $1.00 increase (decrease) in the assumed initial public offering price of $    per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by approximately $    per share, and increase (decrease) the dilution in the pro forma as adjusted net tangible book value per share to new investors by approximately $    per share, in each case, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering. Each increase (decrease) of    shares in the number of shares of common stock offered by us would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by approximately $    per share and increase (decrease) the dilution to investors participating in this offering by approximately $    per share, in each case assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering.

 

81


Table of Contents

If the underwriters exercise in full their option to purchase additional shares of common stock to cover over-allotments, our pro forma as adjusted net tangible book value per share after this offering would be $    , and the dilution in pro forma as adjusted net tangible book value per share to investors purchasing shares of common stock in this offering would be $    .

The following table summarizes, on an adjusted pro forma basis as of March 31, 2024, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by existing stockholders and (ii) to be paid by new investors acquiring our common stock in this offering at the assumed initial public offering price of $    per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing common stock in this offering will pay an average price per share substantially higher than our existing stockholder paid.

 

     Shares Purchased     Total Consideration     Average
Price per
Share
 
     Number      Percent     Amount      Percent  

Existing stockholder

              $                   $       

New investors

          $            $    
     

 

 

   

 

 

    

 

 

   

 

 

 

Total

          $            $    
     

 

 

   

 

 

    

 

 

   

 

 

 

If the underwriters exercise in full their option to purchase additional shares of common stock to cover over-allotments, the percentage of shares of common stock held by existing stockholders will decrease to approximately     % of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will increase to    , or approximately    % of the total number of shares of our common stock outstanding after this offering.

To the extent that options are issued under our compensatory stock plans, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.

 

82


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operation should be read in conjunction with the sections of this prospectus captioned “Summary Consolidated Financial and Other Data” and “Business” and our audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections of this prospectus captioned “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.”

Overview

WEBTOON is a global storytelling platform where a vibrant community of creators and users discover, create, and share new content. WEBTOON empowers its community by enabling creators to participate economically in their own creations and by offering consumers an endless library of content. Our community connects 24 million creators with approximately 170 million monthly active users and 8 million monthly paying users in over 150 countries around the world.11

Content on 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. Over the past decade, we have adapted over 900 titles, including over 100 streaming series and films, more than 200 books, over 70 games and over 11 million consumer product units as of March 31, 2024.

Creators power 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. Cumulatively, we have paid out over $2.8 billion to creators between 2017 and 2023.

Users come 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. Furthermore, our primary user base is Gen Z and millennials. WEBTOON helps fans discover engaging content across genres, with fresh, weekly releases.

Community reinforces 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.

 

11 

The number of creators is as of December 31, 2023. The number of monthly active users and countries are as of the quarter ended March 31, 2024 and as of March 31, 2024, respectively.

 

83


Table of Contents

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.

Our Story So Far

 

 

LOGO

WEBTOON today combines global scale and growth. For the year ended December 31, 2023 and December 31, 2022, respectively:

 

   

we generated total revenue of $1,282.7 million and $1,079.4 million;

 

   

we generated net loss of $144.8 million and $132.5 million, representing a net loss margin of (11.3)% and (12.3)%;

 

   

we generated EBITDA of $(94.3) million and $(82.6) million; and

 

   

we generated Adjusted EBITDA of $11.7 million and $(78.2) million, representing an Adjusted EBITDA Margin of 0.9% and (7.2)%.

How We Generate Revenue

We generate revenue from three distinct revenue streams: Paid Content, advertising and IP Adaptations.

Revenue Breakdown by Business for the Year Ended December 31, 2022 and 2023

($ Million, % Contribution)

 

LOGO

 

84


Table of Contents

Paid Content

We generate Paid Content revenue from purchases by users of content on our platform. Content is purchased by users with Coins which can be exchanged for access to content that is behind a paywall.

Users consume our content in episodes, or short-form units into which long-form stories are serialized, similar to chapters of a book. While the majority of content on our platform is free to read, those episodes that are behind a paywall are only accessible through purchase of a Fast Pass or Daily Pass. A Fast Pass provides users with early access to episodes that have not yet been (but ultimately will be) released from behind a paywall. A Daily Pass provides users with access to episodes of completed or non-active titles, defined as titles with no planned releases of future episodes. Depending on the geographic market, a Fast Pass typically costs 15 to 70 cents per episode, while a Daily Pass costs 30 to 40 cents per episode.

Users may also receive free Coins during in-app promotional events and up to a certain number of free Daily Passes a day. Such free Coins and Daily Passes are not included in Paid Content revenue.

Paid Content revenue also includes the sale of physical books from other publishers, which accounted for less than 1% of revenue in 2023.

In 2023, we generated $1,029.0 million of Paid Content revenue, as compared to revenue of $851.9 million for 2022, representing an increase of 20.8% compared to the prior year period. In 2023, Paid Content revenue comprised approximately 80.2% of our total revenue.

Advertising

We sell five types of advertising products: (1) display ads, (2) achievement-based ads, (3) pre-roll ads, (4) engagement products, and (5) creator content.

Display ads are placed within episodes, also known as in-stream, or in other general locations, regardless of whether the user is viewing the content for free or paying for access. Users can choose to watch a non-skippable pre-roll ad to unlock a paid episode for free. Both display and pre-roll ads are delivered on a cost per thousand impressions (“CPM”) basis. Achievement-based ads are ads where users are rewarded with Coins upon completion of specific tasks. Achievement-based ads are delivered on a cost per action (“CPA”) basis. Additionally, engagement products are partnerships to produce interactive writing contests on the platform, inspired by a brand’s messaging. Creator content includes partnerships with creators to produce branded content to promote a brand or product.

Advertising not only results in direct monetization, but can also serve as a tool to convert non-paying users into paying users. For example, our achievement-based ads tend to introduce users to the utility of Coins, which may ultimately drive higher paying ratio.

In 2023, we generated $145.5 million of advertising revenue, as compared to revenue of $145.1 million for 2022, representing an increase of 0.3% compared to the prior year period. In 2023, advertising revenue comprised approximately 11.3% of our total revenue.

IP Adaptations

We generate IP Adaptations revenue from the production of adaptations of certain content on our platform into other media formats such as film, streaming series, games and merchandise. IP Adaptations help cultivate deeper relationships with fans of our original content; provide an additional source of revenue for our platform and creators; and can promote awareness of the WEBTOON brand and our content in its original form, thereby serving as a powerful user acquisition tool especially in newer markets such as North America. In fact, according to a survey conducted by Euromonitor, a third of WEBTOON consumers had watched a movie or show based on content previously seen on WEBTOON, which demonstrates the power of our IP in increasing brand awareness.

 

85


Table of Contents

Our production model may take the form of licensing, pre-production only, co-production with third-party partners and/or end-to-end in-house production. The majority of production to date has involved smaller investments with lower production risk being borne by us relative to third-party production partners. Occasionally, we may choose to rely entirely on using our in-house production capabilities or assume larger investments if we determine that the potential reward will substantially exceed the investment risk and the magnitude of the required investment is manageable.

In 2023, we generated $108.3 million of IP Adaptations revenue, as compared to revenue of $82.5 million for 2022, representing an increase of 31.4% compared to the prior year period. In 2023, IP Adaptations revenue comprised approximately 8.4% of our total revenue.

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 Monthly Paid Content average revenue per paying user, or Monthly Paid Content 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 based on the location of our users:

 

   

Korea includes 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 World includes 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 (“WEBTOON 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.

 

86


Table of Contents

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. The chart below sets forth the trend in average MAU for each quarter. Units are in millions of users.

As of the quarter ended March 31, 2024, our global MAU have stabilized to reach approximately 170 million. By geographic regions, Korea, Japan, and Rest of World contributed 15%, 12%, and 73% of global MAU, respectively. We have demonstrated durable and consistent growth across regions, but we typically see higher activity in the third quarter of the calendar year due to the seasonal impact of global vacation and our users’ holiday schedules, although the impact of seasonality varies across geographies:

 

   

In Korea, our MAU have reached 24.7 million displaying a generally stable trend with modest fluctuations. Our user base in Korea is highly engaged and well-educated, and our cohorts have demonstrated deeper engagement and levels of consumption over time. In the first quarter of 2023, we saw a temporary drop in web-based MAU due to changes in organic traffic sources, but this started to improve from the second quarter onwards. The last quarter of 2023 experienced a decline in MAU due to a temporary slowdown in our web-novel business. Moving into the first quarter of 2024, there has been a modest year-over-year improvement driven by enhancements in overall product developments including a new main feed UI/UX where users are presented with a personalized recommendation. Looking at broader trends, we typically exhibit an increase in MAU during the third quarter each year, influenced by seasonality and timing of Korean national holidays.

 

   

In Japan, our MAU have reached 21.1 million, demonstrating an over two times increase since the first quarter of 2022, largely attributable to the inclusion of eBIJ, which we acquired on March 31, 2022. While eBIJ had a period of stabilization post-acquisition, LINE MANGA, our primary offering in Japan, has consistently grown its user base through heightened interest in our serialized content which is more frequently updated compared to eBooks. LINE MANGA’s MAU has grown double digit on a year-over-year basis in the first quarter of 2024.

 

   

In Rest of World, our MAU have reached 123.2 million, which is a relatively larger portion compared to Korea and Japan as it includes Wattpad, which has a massive global user base of approximately 89 million as of the quarter ended March 31, 2024. We experienced a temporary spike in users in the first half of 2022 following significant marketing campaigns including a collaboration with BTS. This was followed by a modest decline as we entered a period of stabilization and optimized marketing spend, focusing on key select growth markets including North America. Starting from the third quarter of 2023, we observed rebound of our MAU, driven by organic user growth and a clear focus on prioritizing our core markets. Within Rest of World, WEBTOON North America MAU were 7.7 million as of the quarter ended March 31, 2024. This sets the stage for significant opportunities to drive user growth through targeted, high-return paid marketing campaigns.

 

87


Table of Contents

LOGO

 

 

 

LOGO

LOGO

 

88


Table of Contents

LOGO

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.

The chart below sets forth the trend in average MPU and paying ratio for each quarter. Units are in millions of users for MPU and percentage for paying ratio.

As of the quarter ended March 31, 2024, our global MPU reached 7.8 million with a paying ratio of 4.6%. By geographic regions, Korea, Japan, and Rest of World contributed 49%, 28% and 23% of global MPU, respectively. We have demonstrated consistent growth of MPU and an increased paying ratio, with regional variances reflecting our strategy to foster long-term monetization and strategic realignment on core markets. 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 stabilized around 3.8 million with a paying ratio of 15.5%. Paying ratio is the highest among the regions due to Korea being our home market with a well-established monetization history. Users in Korea are highly familiar with the content journey from discovery to payment, with 97% of our MPU of WEBTOON Korea repeatedly returning to purchase and explore more titles as of the quarter ended March 31, 2024. Our paying ratio remained fairly stable until the third quarter of 2023 when there was a temporary slowdown in our web-novel business, which has since recovered.

 

   

In Japan, our MPU have reached 2.1 million with a paying ratio of 10.1%. After the eBIJ acquisition in 2022, our paying ratio has blended downwards to 8.2% and has since increased by 1.9% to reach the current rate due to increased engagement of WEBTOON-format web-comics. Similar to the high rate of 97% in Korea, 95% of our MPU of LINE MANGA return to purchase and explore more titles as of the quarter ended March 31, 2024.

 

   

In Rest of World, our MPU is 1.8 million with a paying ratio of 1.5%, 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. Within Rest of World, WEBTOON North America MPU were 0.5 million with a paying ratio of 6.6% as of the quarter ended March 31, 2024. We plan to continue to leverage our successful pattern of engagement to drive monetization, especially as we have seen our top engaged users in North America reading a similar number of episodes to users in more mature markets.

 

89


Table of Contents

LOGO

LOGO

LOGO

LOGO

Paid Content Average Revenue per Paying User (Monthly Paid Content ARPPU)

We define Paid Content 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.

 

90


Table of Contents

We view monthly Paid Content 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. Our total monthly Paid Content ARPPU has increased over time as our users explored more titles and purchased more episodes behind our paywall.

 

   

In Korea, our monthly Paid Content ARPPU declined in the last two quarters of 2023 because of a slowdown in demand of the titles produced by Korea’s web-novel business as several key titles concluded and went on break around the same time. Our web-novel business began to rebound in the first quarter of 2024. We also experienced a lower base from the second quarter of 2023 due to our strategic decision to divest SERIES ON, a local OTT platform for TVOD (transactional video-on-demand).

 

   

In Japan, our monthly Paid Content ARPPU growth was primarily driven by higher user engagement for our weekly serialized (original) web-comic content, as well as higher price point content from the acquisition of eBIJ. In the first quarter of 2023, we transitioned our content provider for non-exclusive digitized manga content in Japan from MediaDo to eBIJ. This vertical integration led to a change in revenue recognition from the consumption of certain content on a gross basis, as compared to the previous net basis, and therefore we have seen a notable increase in Paid Content ARPPU in the first quarter of 2023.

 

   

In Rest of World, our monthly Paid Content ARPPU has shown improvement as we continue to evolve our business model and implement strategic initiatives. By expanding our content library as well as improvements in our UI/UX, we are successfully driving higher user engagement and fostering more habitual spending on our content. Within Rest of World, WEBTOON North America monthly Paid Content ARPPU were $9.1 as of the quarter ended March 31, 2024.

 

 

LOGO

 

LOGO

 

91


Table of Contents

LOGO

 

 

LOGO

Key Factors Affecting Our Performance

Our ability to continue to attract and empower creators

Creators are the foundation of WEBTOON and we are committed to empowering their long-term success. This commitment ensures a diversity of content for our users and a platform for our creators to thrive creatively and financially. Our ability to cultivate successful creators allows us to continuously attract and retain new creators, particularly local creators in growing markets like North America, which in turn induces the creation of more localized content and ultimately helps attract new users.

The chart below sets forth the size of our digital content library and creator base over time. The number of creators and the number of titles show those serviced on our platform as of each time period.

Number of Creators and Titles(1) (2)

(Millions)

 

LOGO

 

(1)

Creators include professional and amateur creators.

 

92


Table of Contents
(2)

Titles include both web-comics and web-novels. Number of titles includes ongoing and completed titles created by creators and excludes titles that have been removed from our offerings.

Financial success is important to attracting creators and incentivizing the creation of more compelling content. Cumulatively, we have paid out over $2.8 billion to creators between 2017 and 2023. In the year ended December 31, 2023, our professional creators earned on average $48 thousand per year, with top 100 creators earning on average $1 million per year. We continue to leverage our global user base and ability to facilitate cross-border distribution of content and IP Adaptations in order to help our creators successfully grow their earnings on our platform. As depicted in the chart below, a growing number of creators are making over $100 thousand per year.

Number of Creators Earning Over $100K Annually(1)

(Number of Creators)

 

LOGO

 

(1)

Creators include professional and amateur creators sharing content on WEBTOON serviced in Korean, Japanese and English as well as NAVER SERIES.

Our ability to continue to grow and engage our user base

While the growth in number of creators and volume of compelling content are key to attracting new users, the format and nature of our content creation contributes to our high engagement. The serialized format of our content enables creators to publish stories at weekly intervals across long periods of time, sometimes up to 17 years or longer. Our content recommendation engine complements the power of this diverse and continuously increasing supply of content by recommending uniquely matched experiences for our users.

We internally track the number of users who visit our platform and read one or more episodes within a single week to evaluate user engagement. With new episodes released weekly, a key part of our strategy is to encourage users to visit and read content on multiple days throughout the week, enhancing their interaction with our extensive content library. Based on this approach, for the quarter ended March 31, 2024, over 40% of our WEBTOON Korea users, defined by the above engagement metric, visited and engaged with the platform five or more days a week. For LINE MANGA in Japan, over 50% of users, again measured by the same standard, visited and engaged five or more days a week, with about 30% engaging daily. This high level of engagement underscores the effectiveness of our engagement strategy.

The increase in engagement on our platform is illustrated through the increase in frequency of visits, time spent and volume of activity, which we track by the number of episodes read. The analysis of WEBTOON annual cohorts below demonstrates the increase in content consumption per user over time. By the first year, WEBTOON users in Korea (WEBTOON Korea) and Japan (LINE MANGA) read more than two times the number of episodes than in year zero when they first joined our platform and consumed more than one episode. In Japan, the year-over-year growth in episodes read is modest for newer cohorts, due to the increase in consumption among newer cohorts in year zero of joining. This heightened initial engagement is a promising indicator of our content’s resonance with newer audiences and underscores the potential for sustained growth and deeper user engagement.

 

93


Table of Contents

Annual Cohort of Number of Episodes Read per Active User of WEBTOON

(Number of Episodes, Brackets Indexed to Year 0)

 

LOGO

The time spent on our platform has been largely stable for the past nine quarters across all regions, with average time spent across all WEBTOON offerings remaining steady at around 30 minutes for Korea, Japan and North America. We measure users who read WEBTOON in the U.S. as a proxy to track time spent by users in North America. The longevity of the time spent on our offerings is a testament to our ability to provide high-quality, engaging content.

Daily Time Spent per Active User of WEBTOON

(Average Minutes Spent Per Day)

 

LOGO

Our ability to continue to monetize

Our monetization strategy begins with the appeal of our massive library of compelling, free content. We then target users by providing an opportunity to experience premium Paid Content through (i) achievement-based ads that award free Coins to users upon completion of specific actions, and (ii) various marketing campaigns where we give away free Coins. This process of habituation has successfully motivated non-paying users to ultimately purchase Coins that lead to Paid Content consumption.

The chart below demonstrates the increasing portion of MAU who become paying users in each cohort since January 2020. We have averaged conversion rates for all cohorts across WEBTOON Korea, LINE MANGA and WEBTOON North America since 2020 for simplicity. The chart shows that conversion of MAU to MPU steadily increases over time, reaching approximately 15% after one year and approximately 20% within three years of joining our platform.

 

94


Table of Contents

Monthly Cohort of Paying User Conversion of WEBTOON in Korea, Japan and North America

(% of Monthly Paying Users to Monthly Active Users)

 

LOGO

We also monitor Paid Content GMV as an operating metric (and not a financial metric) to assess and analyze the directional trend of user demand. Paid Content GMV represents the dollars spent in a period by our users to access Paid Content on our platform, which primarily consists of the dollar value of all Coins purchased by our users (no matter when purchased) and subsequently redeemed to access Paid Content on our platform during the applicable period. Paid Content GMV does not include any physical book sales or other content related transactions outside of our platform and any Coins that are distributed as part of our promotional campaigns or as rewards for our achievement-based advertisement products. Similar to our key metrics, Paid Content GMV is subject to certain limitations. 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.”

The below cohort analysis demonstrates our ability to grow Paid Content GMV per paying user cohort over time. The bar chart demonstrates Paid Content GMV in Korea each year, and the table represents Paid Content GMV per paying user cohort indexed to Year 0. For instance, Paid Content GMV per 2017 paying user cohort increased 2.6 times relative to Year 0. These trends are valuable to us in analyzing the demands of our users and assist us in making operational decisions regarding, for example, new episode releases, which content we place behind a paywall over time, user cohort trends and marketing efficiency. We retain the ability to adjust prices, which are relatively low today compared to other forms of digital content.

 

95


Table of Contents

Annual Cohort of Paid Content GMV per Paying User of WEBTOON Korea

($ Millions, Table Indexed to Year 0)

 

LOGO

Our ability to grow advertising revenue

We benefit from a large percentage of our users being Gen Z and millennials, highly sought-after demographics that have traditionally been difficult for advertisers to reach. Our business model is unique in that advertising and Paid Content are not mutually exclusive, whereas many other platforms offer only one of either advertising support access or advertising-free subscription-based access. We are still in the early phases of exploring how advertising could better augment Paid Content monetization.

We believe that there is ample room to substantially increase advertising load and inventory more generally across our properties without compromising our reader experiences. We also continue to innovate with new advertising formats such as our achievement-based ads, which not only generate incremental revenue but also enhance engagement.

Our ability to expand our IP Adaptations business and negotiate attractive terms vis-à-vis media partners

Our ability to generate revenue depends on the demand for our creators’ intellectual property from the entertainment industry and our ability to negotiate attractive terms vis-à-vis media partners. We believe the success of our content studios, including Wattpad WEBTOON Studios, is a critical driver of growth for our IP Adaptations business. Our studio business takes a data and fandom-driven approach to determine which stories on our platform should be optioned for full off-platform production, using readership and consumption trends to inform which storylines and characters are most desired by fans. Such approach reduces the business risks to our IP Adaptations business, including for our in-house production business, as well as for our partners. Our financial performance also depends on the business model we employ for IP Adaptations. Our cost of revenue and capital expenditures may increase if we decide to assume incremental risk of production, for which we may or may not be able to realize commensurate returns.

We benefit from the vast “hit-rate” data we have accumulated relating to a robust slate of tested and proven titles among a library of intellectual property. Our “One Story Multi-Use” strategy has enabled us to successfully

 

96


Table of Contents

adapt, to date, more than 12% of our web-comic and web-novel titles in Korea into other formats including films, streaming series, games, merchandise and print books. The chart below sets forth the cumulative number of IP Adaptations produced per year based on our web-comic and web-novel titles in Korea. We also track the number of titles generating over $50 thousand of revenue a year, through other formats mentioned above, as an indicator of the success of our IP Adaptations while number of titles may vary depending on our strategic pipeline.

Number of Korean Titles Monetized & Number of Korean Titles Generating $50K+ Revenue in Each Year(1)

(Number of Titles)

 

LOGO

 

(1)

Number of titles includes ongoing and completed titles created by creators and excludes titles that have been removed from our offerings.

Our ability to expand presence into new geographic markets and penetrate new user demographics

We are dedicated to two main expansion strategies: (i) building a diverse and localized content library and (ii) expanding the reach of successful local content to a broader global audience. We are typically able to obtain more favorable revenue share terms with creators regarding the translation and cross-border distribution of their titles outside of their home market, as creators can harness our platform to access global viewership and unlock greater monetization opportunities.

The chart below shows the growing number of local and imported original web-comic titles available in Japanese (available on LINE MANGA) and English (available on WEBTOON English). Local original titles refer to original content created on our platform in the local language (e.g., content from Japan written in Japanese) while imported original titles refer to foreign original content translated into the local language (such as Japanese and English as noted in the chart below).

 

97


Table of Contents

Number of Original Titles of WEBTOON(1)

(Number of Titles)

 

LOGO

 

(1)

Number of titles includes ongoing and completed titles created by creators and excludes titles that have been removed from our offerings.

In addition, we build strategic partnerships with community, creator and content platforms, as well as fan bases such as Discord, Patreon, DC Comics and HYBE Entertainment, to tap into new user acquisition channels. These collaborations have brought meaningful user traffic to our platform.

Our continued investments in technology to drive innovation

Our investments in technology and infrastructure are critical for us to maintain our competitive advantage and continued growth of our platform. Key investment areas for our platform include artificial intelligence and machine learning, further advancement of our highly individualized curation algorithm and implementing new and engaging community features. We plan to continue to invest in artificial intelligence to enhance the content creation process, community tools for creators to reach their fans and personalization and gamification features.

Our ability to maintain marketing efficiency

We constantly evaluate our marketing efficiency in connection with the lifetime value of our users. We evaluate our marketing efficiency by tracking our marketing costs as a percentage of our revenue. For the years ended December 31, 2023 and 2022, marketing expense accounted for 9.4% and 16.7% of our total revenue. Since the fourth quarter of 2022, we have taken a disciplined approach to marketing spend as we focused on key markets.

We may increase the dollar amount of marketing expenses for the foreseeable future in our select growth markets, including North America and Japan. However, we expect marketing expenses to stay stable as a percentage of our revenue, although the percentage may differ from period to period depending on fluctuations in the timing and extent of our marketing expenses and business seasonality.

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

 

98


Table of Contents

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.

Impact of COVID-19

Although the COVID-19 pandemic caused disruption to certain aspects of our operations, we continued to experience an increase in our operational performance, cash flows and financial condition since inception. During the COVID-19 pandemic, we experienced an overall increase in user engagement and monetization, which may have been caused in part by the implementation of shelter-in-place orders to mitigate the COVID-19 pandemic.

We have seen this increase in engagement and monetization moderate as shelter-in-place orders have been lifted. There is still uncertainty around the long-term effects of the COVID-19 pandemic or recovery from the COVID-19 pandemic to our business. There can be no assurance that, as a result of the COVID-19 pandemic, recovery from it, or other global economic conditions (including fluctuation in foreign currency exchange rates, interest rates and inflation), users will not reduce their discretionary spending on our platform or may otherwise increase or maintain their usage of our platform, such that our revenue and financial condition will not be adversely affected.

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. Revenue in the accompanying notes to our audited consolidated financial statements included elsewhere in this prospectus 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, 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.

 

99


Table of Contents

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. This does not reflect stock-based compensation expense for stock options granted pursuant to our Amended and Restated 2020 Stock Option, because the qualifying events were not probable of occurring. Upon consummation of this offering, we expect to recognize cumulative share-based compensation expense for the portion of the stock options that had met the service condition as of that date. As of December 31, 2023, the total unrecognized compensation expense related to unvested stock options with both performance and service conditions was $50.7 million. The $34.3 million expense attributable to services rendered will be immediately recognized at the time of a qualified offering, with the $16.4 million residual expense recognized over the remaining service period of 0.74 years using the straight-line method, net of estimated forfeitures.

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. Debt in the accompanying notes to our audited consolidated financial statements included elsewhere in this prospectus.

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 elsewhere in this prospectus.

Loss on Equity Method Investment, Net

Loss on equity method investment, net, includes recognized loss associated with our investments accounted for using the equity method. See Note 18. Equity Method Investments in the accompanying notes to our consolidated financial statements included elsewhere in this prospectus.

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. See Note 4. Other Income (Loss), net in the accompanying notes to our audited consolidated financial statements included elsewhere in this prospectus.

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 Taxes in the accompanying notes to our audited consolidated financial statements included elsewhere in this prospectus.

 

100


Table of Contents

Results of Operations

Consolidated Statements of Operations and Comprehensive Loss

The following table sets forth our consolidated statement of operations for 2023 and 2022 and for the first three months of 2024 and 2023. We have derived this data from our audited consolidated financial statements and our unaudited condensed consolidated statements of operations and comprehensive loss. The information for each of the quarters presented has been prepared on the same basis as our audited annual consolidated financial statements and, in the opinion of management, reflects all adjustments of a normal, recurring nature that are necessary for the fair statement of the results of operations for the period. This data should be read in conjunction with our audited consolidated financial statements and unaudited condensed consolidated financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected in the future.

 

    Year Ended December 31,           Three Months Ended
March 31,
       
(in thousands of USD)   2023     2022     % Change     2024     2023     % Change  

Revenue

  $ 1,282,748     $ 1,079,388       18.8   $ 326,744     $ 310,257       5.3

Cost of revenue

    (987,258     (806,377     22.4     (244,385     (244,407     (0.01 )% 

Marketing

    (121,086     (180,002     (32.7 )%      (19,478     (29,244     (33.4 )% 

General and administrative expenses

    (210,762     (207,728     1.5     (48,693     (56,369     (13.6 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (36,358     (114,719     (68.3 )%      14,188       (19,763     (171.8 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest income

    3,009       1,166       158.1     1,235       357       245.9

Interest expense

    (79     (844     (90.6 )%      (33     (23     43.5

Impairment losses on goodwill

    (63,412     —        —        —        —        —   

Loss on equity method investments, net

    (12,339     (4,694     162.9     (1,052     (524     100.8

Other income (loss), net

    (23,574     937       (2,615.9 )%      (1,437     4,038       (135.6 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax

    (132,753     (118,154     12.4     12,901       (15,915     (181.1 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

    (12,006     (14,369     (16.5 )%      (6,668     (2,377     180.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (144,759     (132,523     9.2     6,233       (18,292     (134.1 )% 

Net income (loss) attributable to non-controlling interests and redeemable non-controlling interests

    (28,304     (2,652     967.3     41       (731     (105.6 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss attributable to WEBTOON Entertainment Inc.

  $ (134,612   $ (159,071     (15.4 )%    $ (22,506   $ (36,788     (38.8 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of the Three Months Ended March 31, 2024 and March 31, 2023

Revenue

 

    Three Months Ended March 31,        
(in thousands of USD)     2024         2023       % Change  

Revenue

  $ 326,744     $ 310,257       5.3

Paid Content

    266,855       255,692       4.4

Advertising

    36,996       30,512       21.3

IP Adaptations

    22,893       24,053       (4.8 )% 

Revenue increased by $16.5 million, or 5.3%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Revenue on a constant currency basis increased by $43.4 million, or 14.0%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. See “—Non-GAAP Financial Measures.”

 

101


Table of Contents

Paid Content revenue increased by $11.2 million, or 4.4%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Such increase was primarily driven by LINE MANGA’s success in channeling and converting historical popularity of manga into web-comics, accompanied by robust growth of original content in the market; Paid Content revenue of LINE MANGA increased by approximately 20% in the three months ended March 31, 2024, compared to the comparable period in 2023. This increase was slightly offset by the April 2023 divestiture of SERIES ON, our OTT offering, which generated Paid Content revenue during the first three months ended March 31, 2023.

Advertising revenue increased by $6.5 million, or 21.3%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was primarily driven by a 269.3% increase in advertising revenue generated from LINE MANGA, which is in the early stage in expanding advertising revenue and carries particularly high potential in expanding our achievement-based advertisements.

IP Adaptations revenue decreased by $1.2 million, or 4.8%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. This decrease was primarily driven by deconsolidation of LOCUS.

Cost of Revenue

 

    Three Months Ended March 31,        
(in thousands of USD)     2024         2023       % Change  

Cost of revenue

  $ (244,385   $ (244,407     (0.01 )% 

Our cost of revenue slightly decreased by $22.0 thousand, or 0.01%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Our cost of revenue remained relatively unchanged as the decrease in such cost driven by a 14.7% decrease in labor cost resulting from a decrease in global headcount and deconsolidation of LOCUS was offset by a 5.3% increase in other costs included in the cost of revenue, which is in line with increase of our revenue in the first quarter of 2024.

Marketing

 

    Three Months Ended March 31,        
(in thousands of USD)     2024         2023       % Change  

Marketing

  $ (19,478   $ (29,244     (33.4 )% 

Marketing expenses decreased by $9.8 million, or 33.4%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The decline is primarily driven by less spending on user acquisition costs and promotional marketing expense reflecting our current strategic plans and marketing discipline to focus on select markets, in conjunction with greater marketing efficiency in Japan and the Rest of World.

General and Administrative Expenses

 

    Three Months Ended March 31,        
(in thousands of USD)     2024         2023       % Change  

General and administrative expenses

  $ (48,693   $ (56,369     (13.6 )% 

General and administrative expenses decreased by $7.7 million, or 13.6%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. This decrease was primarily driven by decreased depreciation and amortization expenses, including property and software depreciation expenses, and

 

102


Table of Contents

decreased labor costs, latter of which derived from corporate structural changes such as deconsolidation of LOCUS and organizational restructuring that led to improved managerial efficiency and decreased global headcount.

Interest Income

 

    Three Months Ended March 31,        
(in thousands of USD)     2024         2023       % Change  

Interest income

  $ 1,235     $ 357       245.9

Interest income increased by $0.9 million, or 245.9%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was primarily driven by higher balances and higher interest rates.

Interest Expense

 

    Three Months Ended March 31,        
(in thousands of USD)     2024         2023       % Change  

Interest expense

  $ (33   $ (23     43.5

Interest expense increased by approximately $10.0 thousand, or 43.5%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase in interest expense is immaterial.

Loss on Equity Method Investment, Net

 

    Three Months Ended March 31,        
(in thousands of USD)     2024         2023       % Change  

Loss on equity method investments, net

  $ (1,052   $ (524     100.8

Loss on equity method investment, net, increased by $0.5 million, or 100.8%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The overall amount of losses increased across multiple equity method investee entities, including YLAB Corporation.

Other Income (Loss), Net

 

    Three Months Ended March 31,     % Change  
(in thousands of USD)     2024         2023    

Other income (loss), net

  $ (1,437   $ 4,038       (135.6 )% 

Other income (loss), net, decreased by $5.5 million, or 135.6%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. This decrease was primarily driven by a loss of $2.5 million recorded on disposition of Jakga.

Income Tax Expense

 

    Three Months Ended March 31,     % Change  
(in thousands of USD)     2024         2023    

Income tax expense

  $ (6,668   $ (2,377     180.5

 

103


Table of Contents

Income tax expense increased by $4.3 million, or 180.5%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. This decrease was primarily driven by a change in position from loss before income tax in the three months ended March 31, 2023 to income before income tax in the three months ended March 31, 2024.

Comparison of the Years Ended December 31, 2023 and December 31, 2022

Revenue

 

     Year Ended December 31,         
(in thousands of USD)    2023      2022      % Change  

Revenue

   $ 1,282,748      $ 1,079,388        18.8

Paid Content

     1,028,960        851,871        20.8

Advertising

     145,452        145,056        0.3

IP Adaptations

     108,336        82,461        31.4

Revenue increased by $203.4 million, or 18.8%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. Revenue on a constant currency basis increased by $237.4 million, or 22.0%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. See “—Non-GAAP Financial Measures.”

Paid Content revenue increased $177.1 million, or 20.8%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The Paid Content revenue increase was primarily driven by LINE MANGA’s success in channeling and converting historical popularity of manga into web-comics, accompanied by robust growth of original content in the market, which contributed to a 61.1% increase of the total Paid Content revenue for the year ended December 31, 2023.

Advertising revenue increased $0.4 million, or 0.3%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase in advertising revenue during the year ended December 31, 2023 was primarily driven by the increase of advertising revenue generated from LINE MANGA, which grew by approximately 180% during the year ended December 31, 2023 with its successful launch of achievement-based advertisements, offset by a decrease of advertising revenue generated from Wattpad due to a decrease in advertising orders.

IP Adaptations revenue increased $25.9 million, or 31.4%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This increase was primarily driven by a $27.1 million increase in the IP Adaptations revenue generated by Studio N Corporation, our subsidiary that led hit television and/or streaming series-adaptations of certain of our titles, including “Sweet Home Season 2”, “Vigilante” and “Doona!” during the time period, partially offset by the decrease of IP Adaptations revenue of Munpia, LOCUS and SIDUS Inc. (“SIDUS”).

Cost of Revenue

 

     Year Ended December 31,         
(in thousands of USD)    2023      2022      % Change  

Cost of revenue

   $ (987,258    $ (806,377      22.4

Our cost of revenue increased by $180.9 million, or 22.4%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. Such increase was primarily due to a $166.3 million increase in revenue sharing cost, of which Paid Content, advertising and IP Adaptations accounted for 72.6%, 4.5% and 22.9%, respectively. As a metric inherently related to revenue, the increase in cost of revenue was largely in line with the $177.1 million, or 20.8%, increase in our Paid Content revenue during the year ended December 31, 2023. A $5.4 million increase in payment gateway fees and a $16.4 million increase in labor costs, too, contributed to the increase.

 

104


Table of Contents

Marketing

 

     Year Ended December 31,         
(in thousands of USD)    2023      2022      % Change  

Marketing

   $ (121,086    $ (180,002      (32.7 )% 

Marketing expenses decreased by $58.9 million, or 32.7%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This decrease was primarily driven by a $ 61.0 million decrease in user acquisition cost and a $0.4 million decrease in brand marketing cost, made possible by our increased operating efficiency. The decrease was partially offset by a $2.3 million increase in labor cost resulting from an increase in employee headcount from December 31, 2022 to December 31, 2023 in our marketing functions.

General and Administrative Expenses

 

     Year Ended December 31,         
(in thousands of USD)    2023      2022      % Change  

General and administrative expenses

   $ (210,762    $ (207,728      1.5

General and administrative expenses increased by $3.0 million, or 1.5%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This increase was primarily driven by an increase in general corporate expenses including communication and utility expenses, and an increase in depreciation and amortization expenses associated with both tangible and intangible assets (including software and certain intellectual property rights). The increase was partially offset by a decrease in labor cost.

Interest Income

 

     Year Ended December 31,         
(in thousands of USD)     2023        2022       % Change  

Interest income

   $ 3,009      $ 1,166        158.1

Interest income increased by $1.8 million, or 158.1%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was primarily due to a combination of higher interest rates and higher balances.

Interest Expense

 

     Year Ended December 31,         
(in thousands of USD)      2023          2022        % Change  

Interest expense

   $ (79    $ (844      (90.6 )% 

Interest expense decreased by approximately $0.8 million, or 90.6%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This decrease largely comprised of a $0.5 million decrease in interest payments following the repayment of loans provided by NAVER Corporation and NAVER J.Hub Co. Ltd in the amount of $30.4 million and $23.7 million, respectively.

Impairment Losses on Goodwill

 

     Year Ended December 31,      % Change  
(in thousands of USD)      2023          2022    

Impairment losses on goodwill

   $ (63,412    $ —         —   

We recognized impairment losses on goodwill for the year ended December 31, 2023 of $63.4 million, primarily consisting of impairment losses on goodwill for Wattpad WEBTOON Studios, Munpia, and Jakga of $6.1 million, $25.6 million, and $31.7 million, respectively. No impairment losses on goodwill were recognized for the year ended December 31, 2022.

 

105


Table of Contents

Loss on Equity Method Investment, Net

 

     Year Ended December 31,      %
Change
 
(in thousands of USD)      2023          2022    

Loss on equity method investments, net

   $ (12,339    $ (4,694      162.9

Loss on equity method investment, net, increased by $7.6 million, or 162.9%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. This increase was mainly due to recognized losses of $11.0 million and $1.3 million associated with our investments in AtoZ Corporation and The Grimm Entertainment Co., Ltd., respectively, which are accounted for using the equity method.

Other Income (Loss), Net

 

     Year Ended December 31,      % Change  
(in thousands of USD)      2023          2022    

Other income (loss), net

   $ (23,574    $ 937        (2,615.9 )% 

Other income (loss), net, decreased by $24.5 million, or 2,615.9%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. This decrease was primarily due to $7.8 million, $6.8 million and $5.3 million of recognized net losses in valuation of financial assets measured at fair value in NAVER Z Co., Ltd., Contents First Inc. and Clova Games Inc., respectively.

Income Tax Expense

 

     Year Ended December 31,      %
Change
 
(in thousands of USD)      2023          2022    

Income tax expense

   $ (12,006    $ (14,369      16.5

Income tax expense decreased by $2.3 million, or 16.5%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. This increase was primarily driven by a $14.6 million increase in pre-tax loss.

Quarterly Results of Operations

The following table sets forth selected unaudited quarterly statements of operations information for each of the quarters in the years ended December 31, 2022 and 2023 and the quarter ended March 31, 2024. The information for each of these quarters has been prepared on the same basis as our audited annual consolidated financial statements and, in the opinion of management, reflects all adjustments of a normal, recurring nature that are necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected in the future.

 

106


Table of Contents

Consolidated Statements of Operations

 

    Three Months Ended  
(in thousands of
USD)
  March 31,
2022
    June 30,
2022
    September 30,
2022
    December 31,
2022
    March 31,
2023
    June 30,
2023
    September 30,
2023
    December 31,
2023
    March 31,
2024
 

Revenue

  $ 232,833     $ 288,838     $ 283,730     $ 273,987     $ 310,257     $ 320,663     $ 317,764     $ 334,064     $ 326,744  

Cost of revenue

    (168,896     (188,085     (241,701     (207,695     (244,407     (239,518     (245,666     (257,667     (244,385

Marketing

    (47,377     (52,325     (59,760     (20,540     (29,244     (33,142     (33,066     (25,634     (19,478

General and administrative expenses

    (38,016     (49,546     (61,774     (58,392     (56,369     (53,469     (45,779     (55,145     (48,693
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

  $ (21,456   $ (1,118   $ (79,505   $ (12,640   $ (19,763   $ (5,466   $ (6,747   $ (4,382   $ 14,188  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest income

    170       28       331       637       357       1,018       913       721       1,235  

Interest expense

    (6     (493     (871     526       (23     (18     (18     (20     (33

Impairment losses on goodwill

    —        —        —        —        —        —        —        (63,412     —   

Gain (loss) on equity method investments, net

    (11,539     875       12,351       (6,381     (524     2,007       1,056       (14,878     (1,052

Other income (loss), net

    (1,132     5,598       (3,407     (122     4,038       (6,090     (721     (20,801     (1,437
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax

  $ (33,963   $ 4,890     $ (71,101   $ (17,980   $ (15,915   $ (8,549   $ (5,517   $ (102,772   $ 12,901  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax benefit (expense)

    (3,078     (6,325     (7,357     2,391       (2,377     (11,201     (5,934     7,506       (6,668
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (37,041   $ (1,435   $ (78,458   $ (15,589   $ (18,292   $ (19,750   $ (11,451   $ (95,266   $ 6,233  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly Trends

Revenue

In 2022, we made several strategic changes to our business, which impacted the overall trend. In the first quarter of 2022, we acquired eBIJ, a leading Japanese publisher of web-based stories, thereby consolidating the then-largest web-based (eBookJapan) and app-based (our LINE MANGA) online comic offerings into one and strengthening our market leadership in Japan. However, in the fourth quarter of 2022, a disciplined approach to marketing spend led to a revenue decrease, aligning with our broader objective to focus resources on key select markets for sustained growth.

In 2023, our growth was driven by our Paid Content business, advertising in Japan, and successful IP Adaptations in Korea. For the Paid Content business, we have especially seen strong growth from Japan driven by robust growth of our original content as well as transformation of content provider integration. In the third quarter of 2023, we saw a modest quarter-over-quarter decline due to our strategic decision to divest SERIES ON, a local OTT platform for TVOD (transactional video-on-demand), in May 2023, deconsolidate LOCUS, a 3D animation and visual special effects production company, in June 2023, and a temporary slowdown of Korea’s web-novel business observed in the second half of 2023. Our IP Adaptations revenue was primarily

 

107


Table of Contents

concentrated in the fourth quarter of 2023 with several hit titles released by Studio N in such period including Death’s Game, Vigilante, and A Bloody Lucky Day. From the fourth quarter of 2023, our strategic adjustments to focus on core businesses and prioritize our core markets had stabilized, and operations returned to normal, underscoring our ability to effectively execute our transformation plans.

Cost of Revenue

In 2022, cost of revenue as an absolute amount increased in the second quarter of 2022 primarily due to our acquisition of eBIJ. For non-exclusive eBook titles, the main content on eBookJapan, we are obligated for higher revenue share while this amount is offset by lower payments fee given eBookJapan is predominantly a web-based platform. The acquisition also caused a fluctuation in trend as we recognized cost over various periods due to continued negotiations around revenue share with Yahoo Japan.

In 2023, we see that our cost of revenue as a percentage of revenue has fluctuated between 75% and 79% across the quarters. Fluctuations in our cost of revenue can be attributed to varying payment fees due to change in revenue mix by geography and purchase channel as it relates to different revenue share agreements and payments fee, as well as business mix as Paid Content, advertising, and IP Adaptations have different profit profiles. Furthermore, recognition timing of our costs relating to IP Adaptations business is also a variable to note.

The component of our cost of revenue related to creator revenue share (which we share from our revenue streams across Paid Content, advertising, and IP Adaptations) and third-party payment fees (from web and mobile app including fees to payment gateway companies for processing payments as well as platform fees payable to Google and Apple) was $862.2 million for the year ended December 31, 2023, representing 67% of our total revenue.

This component of our cost of revenue varies depending on market-specific dynamics including our competitive positioning and market standard rates. For example, in Korea, our revenue share with creators is largely a result of our proactive efforts to establish and nurture the market as we pioneered and first created the web-comic market. Payment fees are relatively favorable because a meaningful portion of our purchases of Coins are made via the web, where transaction fees are typically lower compared to those imposed by app stores. In Japan, we incorporate a broad array of non-exclusive titles, including digitized manga, to best engage and monetize our user base. This diversification comes at a relatively higher revenue share cost due to the established sourcing structures within the Japanese content industry. Our payment fees are directly influenced by the revenue mix of our platforms as purchases of Coins on LINE MANGA are predominantly app store driven whereas eBookJapan is web driven.

Marketing

Our marketing expense comprises of user acquisition costs, promotional Coins, indirect and brand marketing, and labor. On a quarterly basis, marketing expenses have generally decreased since the third quarter of 2022. During the first three quarters of 2022, marketing expenses primarily increased as we focused on investing in user acquisition to expand our global user base. However, starting from the fourth quarter of 2022, our marketing expenses have decreased from the elevated levels experienced earlier in 2022. This trend is a reflection of a deliberate business strategy to concentrate our resources on key select markets, thereby aligning our marketing efforts with our broader business objectives. We have chosen to optimize our marketing investments by focusing on those markets where we see the highest potential for growth and ROI. This strategic realignment allows us to allocate our resources more efficiently and effectively, enhancing our ability to achieve sustainable growth.

The component of marketing expense related to user acquisition expenses and certain expenses related to promotional coins included in marketing expenses was $106.3 million for the year ended December 31, 2023, representing 8.3% of our total revenue. These expenses are strategically allocated depending on our market

 

108


Table of Contents

penetration and overall strategy in each geography. In regions with a high adoption rate and strong brand awareness such as Korea, a significant portion of our user acquisition is organic, leading to lower user acquisition and promotional Coins expense as a percentage of revenue. We believe that we have a substantial market opportunity in several geographies, including North America, and plan to continue our investment in marketing to attract new users and convert to paying users.

General and Administrative Expenses

On a quarterly basis, general and administrative expenses generally decreased for all quarters presented, with the exception of the second quarter of 2022, third quarter of 2022, and the fourth quarter of 2023. General and administrative expenses increased in those quarters primarily due to personnel related costs to support our expanded operations, and our continued investment in our platform and services. However, in 2023, general and administrative expenses have stabilized due to enhanced revenue generation efficiency.

Interest Income

On a quarterly basis, interest income generally increased sequentially for all quarters presented, with the exception of the second quarter of 2022, first quarter of 2023, third quarter of 2023 and fourth quarter of 2023. The increase in interest income was primarily driven by a combination of rising interest rates and an increase in cash balance.

Interest Expense

Interest Expense was not material for the quarters presented, with the exception of the second quarter and third quarter of 2022, which was primarily due to interest related to our outstanding debt obligations.

Income Tax Expense

Quarterly income tax expense fluctuated largely due to variances across different foreign jurisdictions where foreign subsidiaries have been established as we continued our global expansion.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, our management and board of directors also consider EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, revenue on a constant currency basis and revenue growth on a constant currency basis, each of which is a non-GAAP financial measure, to assess the performance of our business. 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 expense, income tax expense and depreciation and amortization. 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

 

109


Table of Contents

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; however, as we have borrowed money to finance transactions and operations and interest expense is an element 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 revenues, 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. As a result of these exclusions from EBITDA, any measure 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 following this offering, 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.

 

110


Table of Contents

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,  
   2023     2022  

Revenue

   $ 1,282,748     $ 1,079,388  
    

Net loss

   $ (144,759   $ (132,523

Interest expense

     79       844  

Income tax expense

     12,006       14,369  

Depreciation and amortization

     38,359       34,735  
  

 

 

   

 

 

 

EBITDA(6)

   $ (94,314   $ (82,575
  

 

 

   

 

 

 

Loss on equity method investments, net(1)

     12,339       4,694  

Loss on fair value instruments, net(2)

     22,677       190  

Impairment losses on goodwill(3)

     63,412       —   

Stock-based compensation expense(4)

     3,220       (525

Restructuring and IPO-related costs(5)

     4,330       —   
  

 

 

   

 

 

 

Adjusted EBITDA(6)

   $ 11,663     $ (78,216
  

 

 

   

 

 

 

Net loss margin

     (11.3 )%      (12.3 )% 

Adjusted EBITDA Margin

     0.9     (7.2 )% 

 

(1)

Represents our proportionate share of recognized losses associated with our investments accounted for using the equity method. See Note 18. Equity Method Investments in the accompanying notes to our audited consolidated financial statements included elsewhere in this prospectus.

(2)

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.

(3)

Represents impairment losses on goodwill for Wattpad WEBTOON Studios, Munpia, and Jakga of $6.1 million, $25.6 million, and $31.7 million, respectively, for the year ended December 31, 2023.

(4)

Represents non-cash stock-based compensation expense related to WEBTOON’s equity incentive plan and stock-based compensation plans of NAVER, Munpia and LOCUS.

(5)

Represents non-recurring expenses that we do not consider representative of the operating performance of the business. For the year ended December 31, 2023, other costs are comprised of the following expenses associated with IPO readiness activities: (i) financial advisory fee of approximately $0.9 million, (ii) consulting fee of approximately $1.5 million, and (iii) severance fees of approximately $1.9 million paid to certain former officers and employees of Wattpad, Wattpad WEBTOON Studios and WEBTOON.

(6)

Totals may not foot due to rounding.

For the year ended December 31, 2023, we generated net loss of $144.8 million, EBITDA of $ (94.3) million, Adjusted EBITDA of $11.7 million, compared to net loss of $132.5 million, EBITDA of $(82.6) million, and Adjusted EBITDA of $(78.2) million for the year ended December 31, 2022.

 

111


Table of Contents

The following table presents a reconciliation of net income (loss) to EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for each of the periods presented.

 

(in thousands of USD, except
percentages)
  Three Months Ended  
    March 31,
2022
    June 30,
2022
    September 30,
2022
    December 31,
2022
    March 31,
2023
    June 30,
2023
    September 30,
2023
    December 31,
2023
    March 31,
2024
 

Revenue

  $ 232,833     $ 288,838     $ 283,730     $ 273,987     $ 310,257     $ 320,663     $ 317,764     $ 334,064     $ 326,744  
                 

Net income (loss)

  $ (37,042   $ (1,437   $ (78,458   $ (15,587   $ (18,292   $ (19,750   $ (11,451   $ (95,266   $ 6,233  

Interest expense

    6       493       871       (526     23       18       18       20       33  

Income tax expense (benefit)

    3,078       6,325       7,357       (2,391     2,377       11,201       5,934       (7,506     6,668  

Depreciation and amortization

    5,411       8,471       9,775       11,077       9,475       9,289       9,180       10,415       9,035  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA(6)

  $ (28,547   $ 13,853     $ (60,454   $ (7,427   $ (6,418   $ 759     $ 3,681     $ (92,337   $ 21,969  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss (gain) on equity method investments, net(1)

    11,539       (875     (12,351     6,381       524       (2,007     (1,056     14,878       1,052  

Loss (gain) on fair value instruments, net(2)

    567       (238     (2,863     2,724       (246     (854     213       23,563       (3,371

Impairment losses on goodwill(3)

    —        —        —        —        —        —        —        63,412       —   

Stock-based compensation expense(4)

    (257     (484     129       86       2,329       769       1,234       (1,111     836  

Restructuring and IPO-related costs(5)

    —        —        —        —        1,182       446       8       2,694       2,340  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(6)

  $ (16,698   $ 12,257     $ (75,539   $ 1,764     $ (2,629   $ (887   $ 4,081     $ 11,099     $ 22,827  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) margin

    (15.9 )%      (0.5 )%      (27.7 )%      (5.7 )%      (5.9 )%      (6.2 )%      (3.6 )%      (28.5 )%      1.9

Adjusted EBITDA Margin

    (7.2 )%      4.2     (26.6 )%      (0.6 )%      (0.8 )%      (0.3 )%      1.3     3.3     7.0

 

(1)

Represents our proportionate share of recognized losses associated with our investments accounted for using the equity method. See Note 18. Equity Method Investments in the accompanying notes to our audited consolidated financial statements and Note 22. Subsequent Events in the accompanying notes to our condensed consolidated financial statements included elsewhere in this prospectus.

(2)

Represents unrealized net loss (gain) 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.

(3)

Represents impairment losses on goodwill for Wattpad WEBTOON Studios, Munpia, and Jakga of $6.1 million, $25.6 million, and $31.7 million, respectively, for the three months ended December 31, 2023.

(4)

Represents non-cash stock-based compensation expense related to WEBTOON’s equity incentive plan and stock-based compensation plans of NAVER, MUNPIA and LOCUS.

(5)

Represents non-recurring expenses that we do not consider representative of the operating performance of the business. For the three months ended March 31, June 30, and September 30, 2023, such costs are comprised of severance fees paid to certain former officers and employees of Wattpad, Wattpad WEBTOON Studios and WEBTOON of approximately $1.2 million, $0.4 million and $0.01 million, respectively. For the three months ended December 31, 2023, such costs are comprised of the following expenses associated with IPO readiness activities: (i) financial advisory fee of approximately $0.9 million, (ii) consulting fee of approximately $1.5 million, and (iii) severance fees of approximately $0.2 million paid to certain former officers and employees of Wattpad, Wattpad WEBTOON Studios and WEBTOON. And for the three months ended March 31, 2024, such costs comprised of severance fees paid to certain former officers and employees of Wattpad, Wattpad WEBTOON Studios and WEBTOON of approximately $2.3 million.

(6)

Totals may not foot due to rounding.

 

112


Table of Contents

Constant Currency Revenue

We provide revenue, including period-over-period growth rates, adjusted to remove the impact of foreign currency rate fluctuations, which we refer to as revenue on a constant currency basis. We believe providing revenue and revenue growth on a constant currency basis helps our investors to better understand our underlying performance because they exclude the effects of foreign currency volatility that are not indicative of our actual results of operations. 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.

A reconciliation of our revenue on a constant currency basis for each of the periods indicated is below: