Wattpad CEO Allen Lau.Handout
South Korean internet giant Naver Corp. has struck a deal to buy Toronto’s Wattpad Corp., the latest in a string of international mergers and acquisitions involving Canadian technology companies.
Wattpad, which touted itself as the “next Disney” and built one of Canada’s largest global consumer internet brands, confirmed the deal Tuesday evening, shortly after a Globe report revealed the impending sale. Wattpad said only that the value was more than US$600-million in stock and cash but two sources familiar with the matter said the sale price was US$660-million. The Globe and Mail is not identifying the sources because they are not authorized to speak publicly on the matter.
“This is a momentous milestone for the company,” chief executive and co-founder Allen Lau said in an interview. “This is not the end, this is the beginning of an even faster growth trajectory for us to get to our mission. This is the most amazing day in the history of the company.”
Wattpad provides an online platform for amateur authors to post their works, which are read by more than 90 million monthly users globally. Its users are typically young women, accessing the app on their smartphones. Canadian author Margaret Atwood was an early champion.
Wattpad uses artificial intelligence to identify which stories are popular and have potential for adaptation into other formats. That has fuelled its grand ambitions to upend traditional Manhattan publishers and Hollywood producers, who have typically greenlit books and movies based on gut instinct.
Wattpad built a movie studios arm, which has struck licensing deals on behalf of writers with publishers and studios around the world to adapt stories first published on Wattpad into other formats. Those include two Hollywood films based on the popular After young adult romance series by American writer Anna Todd, who began tapping out her future best-selling stories on her phone in a Target checkout line in Texas in 2013 on Wattpad. The films have each grossed tens of millions of dollars worldwide. Two more films in the After series wrapped production last month. Wattpad currently has 90 movie and television deals in development.
After helping hundreds of its writers secure book deals with third-party publishers, Wattpad in 2019 also started its own publishing arm to produce book versions of its stories. Wattpad also sells advertising on its platform.
Naver operates South Korea’s largest online search engine, the Line mobile messaging app, and other internet properties including the Snow video app, digital comics platform Webtoon and livestreaming platform V Live, used by K-pop celebrities to post videos and interact with fans. Naver was named the world’s ninth most innovative company by Forbes in 2018.
Seong-Sook Han, CEO of Naver, said in a release that Mr. Lau, his co-founder Ivan Yuen and “the entire team at Wattpad have created something special, and we are grateful to have Allen and Ivan continue to lead this fantastic company for us.” She said Wattpad’s “vision to entertain and connect the world through stories” would fit with Naver’s brands and “is a big step towards us becoming a leading global multimedia entertainment company.” Wattpad will continue to operate as a stand-alone operation, Mr. Lau said.
Wattpad invited potential bidders in the fall after receiving an unsolicited offer from U.S. internet content company Fandom Inc. A source who is familiar with the situation, but not authorized to speak about it, said both Spotify AB and ByteDance Ltd., the owner of the popular TikTok social-media site, also submitted bids. The Globe first reported on Jan. 5 that Wattpad was talking to buyers.
The Toronto company had previously raised more than US$115-million in funding from Canadian and U.S. venture capital firms, as well as global investors Times Bridge and Chinese internet giant Tencent Holdings Ltd., owner of an online reading service similar to Wattpad, China Literature Ltd.
Despite Wattpad’s high-profile entertainment deals, the company’s ambitions have not been matched by massive revenue growth. Wattpad is believed to generate revenue in the range of just $40-million annually.
However, the company has high hopes for one of its more recent revenue-generating initiatives: converting its millions of readers to paying customers by charging readers to access stories by some authors and splitting proceeds with them. The effort has already generated payouts of more than $1-million to writers based on just a small number of authors participating. The company plans to expand the program globally.
Wattpad has also benefited from the pandemic: The company last month said it had more than a 50-per-cent increase in sign-ups last spring compared with pre-COVID-19 levels as people sheltered at home. The number of new stories written on the platform increased by 151 per cent, while the number of new writers increased by 125 per cent.
Peter Misek, a partner with Framework Venture Partners who led an investment in Wattpad in 2016, said he decided to back the company because “they had the largest artificial intelligence team I’d ever seen operational in Canada and they had deployed it for the benefit of the content creation industry” in a way that would “de-risk” the process of determining which Wattpad properties would be hits in other formats.
“This is an incredible outcome for Allen and the team at Wattpad,” said Damien Steel, managing partner with OMERS Ventures, a Wattpad investor. “The company has evolved from a business that was disrupting publishing in its earliest days, to … [the] most innovative global entertainment company uniquely positioned to appeal to today’s youth.” He said the sale is the sign Canada’s tech sector is “truly maturing.”
Asked why the company was selling out, Mr. Lau said: “I don’t believe selling and continuing are mutually exclusive. We absolutely want to continue in a turbocharged fashion. This is perhaps the last episode of season one but season two … starts tomorrow.”
The deal is expected to close within 90 days.
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Sean Silcoff