On September 10, an investor filed a class action lawsuit against WEBTOON Entertainment Inc. The lawsuit alleges that Webtoon, a hugely popular online comic platform in South Korea, misled investors during its initial public offering (IPO). Currently, multiple law firms are investigating whether the lawsuit has merit.
Webtoon went public on June 27th of this year. Shares were sold at $21 and the company announced it raised approximately $308.5 million from the sale. It generated a lot of buzz, including the opening of a pop-up store in Times Square. When the company went public, its initial financial reports were impressive and it looked like a growing company.
However, in August, shortly after the IPO closed, the company released its second quarter 2024 financial results. In that announcement, the company reported revenue of $320 million, which was not a huge growth after the IPO. The company cited lower advertising revenue and weak foreign exchange as the reasons. Bear reported these losses at the time, which seemed to be a given. As of September 11, the company’s stock price closed at $10.37, and the company’s stock price fell further.
But the lawsuit alleges that Webtoon misled investors in its IPO registration statement, which, according to the SEC’s website,
“A company must clearly explain important information about its business operations, financial condition, results of operations, risk factors, and management.”
The company’s registration statement did not specify the impact of declining advertising revenue, a slowdown in its IPO, or a weak foreign currency, which may have led investors to misunderstand the feasibility of Webtoon’s IPO.
At this point, only complaints have been filed in the lawsuit. Several law firms have called on shareholders to report issues by Nov. 4, at which point we may hear more information or legal action may be taken. The Beat will continue to follow developments in the case.
Special thanks to fellow Beat guy Justin Guerrero for his help and background on this piece.
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