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On Thursday, Citi initiated coverage on Webtoon Entertainment Inc (NASDAQ:WBTN), assigning a Buy rating with a price target of $11.00. Currently trading at $8.05, the stock has declined significantly, with InvestingPro data showing a 65% drop over the past year and a sharp 13.8% decline just in the last week. The new coverage comes after Webtoon Entertainment’s shares experienced significant depreciation, losing over half of their market value since their initial public offering in June 2024. This decline was attributed to what Citi describes as "short-term operational softness and unmet early expectations."
Citi’s analysis suggests that the current market consensus has been reset, and with the company now executing on its plans, the stock appears undervalued. This assessment aligns with InvestingPro’s Fair Value analysis, which indicates the stock is currently undervalued. With a price-to-book ratio of 0.71 and maintaining a strong current ratio of 2.63, Webtoon Entertainment is trading at a multiple of 0.3 times its estimated 2025 enterprise value to sales (EV/sales), which is substantially lower than its peer, China Literature, trading at 2.4 times.
The initial forecasts for Webtoon Entertainment, which anticipated a rapid increase in EBITDA and aggressive revenue growth, were deemed unrealistic. Since then, the estimates have been adjusted to more normalized levels. Despite the initial setbacks, Citi notes that Webtoon Entertainment’s core business model, which has proven successful in Korea with strong monthly active user (MAU) penetration and high average revenue per paying user (ARPPU), is scalable in international markets.
While international monetization is still catching up, the user base in Japan and North America, excluding Wattpad, continues to grow. Citi highlights the company’s rich data platform and the integration of AI technology backed by Naver, along with a robust pipeline of Originals and content adaptations, as key drivers for Webtoon Entertainment’s long-term growth potential.
Citi concludes that with the adjustments in market expectations and the company’s strategic execution, Webtoon Entertainment offers an attractive growth story with a favorable risk-reward balance for investors. For deeper insights into Webtoon Entertainment’s valuation and growth prospects, InvestingPro subscribers can access the comprehensive Pro Research Report, which includes detailed financial analysis, Fair Value estimates, and additional ProTips that help evaluate the investment opportunity.
In other recent news, Webtoon Entertainment Inc. reported its first-quarter 2025 earnings, showing a net loss of $22 million despite a 5.3% revenue growth on a constant currency basis. The company’s revenue remained flat year-over-year, with significant growth in Japan, which accounted for over 50% of its Q1 revenue. Adjusted EBITDA fell to $4.1 million from $22.2 million a year earlier. Goldman Sachs analyst Eric Sheridan revised Webtoon’s stock price target to $11.00 from $15.00, maintaining a Buy rating, while Evercore ISI’s Mark Mahaney cut the target to $20.00 from $23.00, upholding an Outperform rating. Both analysts’ decisions followed the earnings report, highlighting mixed results and a decline in global monthly active users. Webtoon plans to implement platform changes, including new content partnerships and app interface revisions, aiming to enhance user engagement and monetization. Despite challenges, the company projects Q2 2025 revenue growth between 2.2% and 5.2%, with continued investments in marketing and product improvements.
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