On Monday, Evercore ISI began coverage on Webtoon Entertainment Inc (NASDAQ: WBTN) with a favorable outlook, assigning an Outperform rating and setting a price target of $30.00. The firm's positive stance is based on a valuation of 2x EV/Sales on projected 2025 revenue of $1.8 billion and 23x EV/EBITDA on an expected EBITDA of $147 million.
Webtoon Entertainment, known for its global platform featuring web-comics and web-novels, boasts over 170 million users and 24 million creators, contributing to a library of more than 450,000 web-comics and 55 million web-novels. The company's revenue is diversified across three main streams: Paid Content, which constitutes over 80% of its total revenue, Advertising, and IP Adaptations.
The firm's bullish thesis on Webtoon is grounded in the company's dominant position in the online web-comics and web-novels market segments, a highly engaged user base, and a revenue model that is expanding. Additionally, Evercore ISI sees the potential for significant profitability in the future. Insights from due diligence checks with numerous Webtoon creators and a proprietary survey of approximately 40 U.S. users reinforce the platform's strong value proposition.
Webtoon Entertainment's financials show promising trends, with reported revenue reaching $1.3 billion in 2023, marking a year-over-year increase of 19%. The firm anticipates that Webtoon's Gross Margins could improve from the current 23% to a long-term range of 35%-40%, and EBITDA Margins could increase from low single digits to a target of 15%-20%.
The company has already achieved a significant degree of product-market fit in Korea, with nearly 50% population penetration, and Japan, where it has reached close to 20% penetration. Evercore ISI believes that Webtoon's international appeal, currently at low single-digit penetration levels, has substantial room for growth.
In other recent news, Webtoon Entertainment Inc. has been the subject of considerable analysis by major financial institutions. Morgan Stanley initiated coverage on Webtoon with an Equalweight rating, setting a price target of $23.00. The firm highlighted Webtoon's success in engaging a significant portion of internet users in Korea and Japan, and projected a compound annual growth rate (CAGR) of 4% from 2023 to 2026.
Simultaneously, JPMorgan initiated coverage on the company with a Neutral rating and a similar price target of $23.00. The firm projected an 18% revenue CAGR from 2023 to 2026, recognizing the company's global reach and diversified revenue streams. However, JPMorgan noted the need for evidence of solid execution on several fronts before having a higher conviction in Webtoon's long-term growth.
Goldman Sachs, on the other hand, initiated coverage on Webtoon with a Buy rating and a 12-month price target of $62.00. The firm noted Webtoon's advantageous position in the web-comics market and its alignment with several long-term growth themes.
These recent developments underscore the potential of Webtoon's business model to sustain its growth trajectory by tapping into new markets, particularly in North America. The company's strategy to expand its footprint in North America was underscored as a key driver for future growth.
The analysts' statements from Morgan Stanley, JPMorgan, and Goldman Sachs reflect an expectation of steady growth for Webtoon, underpinned by strategic initiatives aimed at capturing a larger share of the international digital content market.
InvestingPro Insights
Evercore ISI's optimistic coverage of Webtoon Entertainment Inc (NASDAQ: WBTN) highlights the company's potential in the digital entertainment space. Complementing this outlook, InvestingPro data provides a real-time snapshot of the company's financial standing. As of the last twelve months up to Q1 2024, Webtoon's market capitalization stands at $2.59 billion, with a revenue of $1.3 billion, reflecting a solid 5.31% quarterly revenue growth. Despite a challenging Gross Profit Margin of 24.01%, the company's liquid assets position it well to cover short-term obligations, a positive sign for investors.
InvestingPro Tips suggest that while Webtoon holds more cash than debt, indicating financial stability, the stock is currently in overbought territory according to the RSI, and it trades at a high EBITDA valuation multiple. Moreover, the company's shares are trading near their 52-week low, which could be an indicator of undervaluation. For those considering an investment in Webtoon, there are additional InvestingPro Tips available, providing deeper insights into the company's financial health and stock performance. Interested investors can unlock these tips and gain a comprehensive view of Webtoon Entertainment by using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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