Naver's Shocking Move: Why Webtoon Entertainment's Nasdaq Debut Could Spell Disaster!

Webtoon Entertainment, a company controlled by the South Korean internet giant Naver, is facing significant challenges following its debut on the Nasdaq in June 2024. The company is experiencing pressure on earnings due to the weakening won, which has raised concerns among industry officials about its financial outlook for the coming quarters.

Reporting its sales in U.S. dollars, Webtoon Entertainment is heavily reliant on revenue from paid webtoons through its subsidiary, Naver Webtoon. Approximately 60% of its shares are held by Naver, while around 24% belong to LY Corp., a joint venture between Naver and the Japanese multinational conglomerate SoftBank. Notably, the majority of the company’s revenue—88%—comes from Korea and Japan.

Industry analysts are forecasting a decline in fourth-quarter sales, following a third-quarter report that indicated Webtoon Entertainment achieved $378.04 million in sales, reflecting an 8.7% year-on-year increase. However, this figure could have been higher—$379.45 million—had it not been for the adverse effects of the weakening won, which was calculated at an average exchange rate of 1,385.4 won per dollar.

“In other words, currency movements reduced the company’s overall revenue growth,”

an industry official explained. The situation has deteriorated further, as the won has consistently traded above the 1,400 won per dollar mark since October, even breaching the 1,480 level for the first time since the Great Recession, reaching 1,480.10 and 1,483.6 on consecutive days in December.

The situation is compounded by the rising value of the Japanese yen, which climbed from the 150 range in mid-October to about 156 against the dollar. Given that Webtoon Entertainment derives most of its income from Korea and Japan, the fluctuations in foreign exchange rates are poised to have a significant impact on its earnings when translated into U.S. dollars.

Even without factoring in currency fluctuations, forecasts suggest that Webtoon Entertainment will see a decline in sales for the fourth quarter, driven by substantial year-end expenses. These include severance costs and minimum revenue guarantees to contracted cartoonists, which are estimated to total around $16.6 million. According to another industry official, the company is projected to experience a year-on-year sales decline of between 2.3% and 5.1%, excluding the effects of exchange rates.

Webtoon Entertainment's Nasdaq debut made headlines as it became the first Korean content company to enter the New York stock market, marking a significant milestone. The company has been actively collaborating with leading entertainment firms, including Disney and Warner Bros., to bolster its global presence in the storytelling market.

As Webtoon Entertainment navigates these financial challenges, the weakening won and increasing operational costs signal a critical juncture for the company as it seeks to maintain its growth trajectory in a competitive global landscape.