Webtoon Entertainment (WBTN) risk factors, FY2024 10-K

Risks Related to Our Business, Industry and Operations

1. 01We have experienced rapid growth in recent periods, and our historical growth rates may not be indicative of our future performance
2. 02Our 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
3. 03results of operations. Failure to adequately identify and provide sufficient monetization opportunities could adversely affect our business, financial condition or results of operations
4. 04Our 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
5. 05If 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
6. 06We operate in highly competitive markets, and we face significant competition to attract and empower our creators and users
7. 07Maintaining and enhancing the market recognition and reputation of our brands is a critical component of our relationship with creators, users and other third parties
8. 08Our growth depends on our ability to innovate and expand our advertising business and to develop effective advertising products
9. 09We intend to continue to diversify our monetization strategy and increase revenues from IP Adaptations, which may not be successful
10. 10We 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
11. 11We 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
12. 12Our 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
13. 13We 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
14. 14We have a history of net losses, and we anticipate increasing expenses in the future, and we may not achieve or maintain profitability
15. 15If we fail to control our content-related costs, the expenses we incur may exceed the increase in revenues
16. 16The 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
17. 17Future 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
18. 18Our 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
19. 19We 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
20. 20Certain 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
21. 21NAVER and LY Corporation are not limited in their ability to compete with us, and the corporate opportunity provisions in our Amended Charter may enable them to benefit from corporate opportunities that may otherwise be available to us
22. 22Our reliance on third parties in many aspects of our business exposes us to additional risks
23. 23Problematic 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
24. 24If 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
25. 25Our 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
26. 26Our 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
27. 27We 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
28. 28We may require additional capital to support our business in the future, and this capital might not be available on reasonable terms, if at all
29. 29If 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
30. 30We 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
31. 31Our business is affected by seasonal demands, and our quarterly operations results fluctuate as a result
32. 32Our results of operations, which are reported in U.S. dollars, are affected by fluctuations in currency exchange rates
33. 33Increasing scrutiny and changing stakeholder expectations with respect to ESG and sustainability practices may impose additional costs or risks
34. 34Our business and reputation may be harmed by changes in business, economic or political conditions that impact global markets, or by a systemic market event

Risks Related to Government Regulations and Legal Proceedings

1. 35We are, and could become, subject to significant legal proceedings and regulatory investigations that may result in significant expenses, fines and reputational damage
2. 36The success of our growth strategy depends on our ability to provide a safe online environment for children
3. 37We may also be subject to additional criminal liability related to child pornography or child sexual exploitation under other domestic and international laws and regulations
4. 38Governmental 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
5. 39In 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
6. 40Our 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
7. 41We 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
8. 42We 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
9. 43We 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
10. 44We 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
11. 45We 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
12. 46with 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
13. 47Changes in tax laws could subject us to additional tax liabilities

Risks Related to Intellectual Property

1. 48Claims 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
2. 49licensing or other settlements. Our intellectual property rights may not be able to withstand any third-party claims challenging them
3. 50Our defenses to claims of infringement, misappropriation or other violations of third-party intellectual property rights are costly and may not be successful
4. 51Failure to obtain, maintain, protect and enforce our proprietary and intellectual property rights could adversely affect our business
5. 52Failure to adequately protect, enforce and defend our rights in our proprietary and intellectual property rights could adversely affect our business
6. 53We 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
7. 54Our intellectual property strategy may prove to be inadequate to protect our intellectual property rights
8. 55We may not be able to protect our intellectual property rights throughout the world
9. 56Digital piracy and the sale of counterfeit merchandise could adversely affect our business
10. 57Our intellectual property rights in content on our platform are limited by the terms of our agreements with content creators
11. 58We use open-source software on our platform, which may pose particular intellectual property risks to, and could adversely affect, our business
12. 59We utilize artificial intelligence, which could expose us to liability or adversely affect our business

Risks Related to Doing Business in Korea

1. 60NAVER WEBTOON’s transactions with its subsidiaries and affiliates may be restricted under Korean fair trade regulations
2. 61NAVER 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
3. 62NAVER WEBTOON’s transactions with related parties are subject to close scrutiny by the Korean tax authorities, which may result in adverse tax consequences
4. 63As 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

Risks Related to Ownership of our Common Stock

1. 64NAVER controls a significant percentage of our voting power and may have interests that conflict with the interests of other stockholders
2. 65We are a “controlled company” and, as a result, qualify for exemptions from certain corporate governance requirements
3. 66We cannot be certain that an active trading market for our common stock will be sustained
4. 67The stock price of our common stock may fluctuate significantly
5. 68The obligations associated with being a standalone public company require significant resources and management attention
6. 69We 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
7. 70We do not intend to pay any cash distributions or dividends on our common stock in the foreseeable future
8. 71Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, including sales by the cornerstone investor, could depress the market price of our common stock
9. 72The 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
10. 73If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected
11. 74Anti-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
12. 75Our Amended Charter designates specific courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which may limit our stockholders’ abilities to obtain a favorable judicial forum for disputes with us or our directors, officers or employees