Canada’s Wattpad in talks to be sold for more than US$500-million, source says

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Wattpad Corp., a Toronto company that once touted itself as the “next Disney” and built one of Canada’s largest global internet brands, is in talks with multiple parties to potentially sell the enterprise for upward of US$500-million.

A source familiar with Wattpad, led by co-founder Allen Lau, said it invited potential bidders in the fall after receiving an unsolicited takeover offer from a U.S. internet company. The Canadian company is now in active talks with multiple interested parties and could sign a deal as early as this month, though it’s still possible no deal will happen, the source said. The Globe and Mail is not identifying the source because they are not authorized to speak publicly on the matter.

A company spokesman said, “We don’t have any news to share,” in response to enquiries about a potential sale.

Revenge of the nerds: How reading app Wattpad is using AI to create the next Disney

Wattpad provides an online platform for amateur authors to post their works, which are read by more than 90 million monthly users around the world. Its primary users are typically young women, accessing the app on their smartphones.

The company has made multiple attempts in recent years to generate more revenue off its platform, which is free to use. It uses artificial intelligence to identify which stories are popular and have potential for adaptation into other formats, which it has fuelled grand ambitions to upend the traditional Manhattan publishers and Hollywood producers, who have typically greenlit books and movies based on gut instinct.

Wattpad has argued its data-based approach to identify blockbuster hits based on the response of its online readers could help producers reduce risk in the content creation process. “You can view Wattpad as an intellectual property factory that can generate entertainment properties organically and in large quantity,” Mr. Lau told The Globe last year.

On the company’s 10th anniversary, in November, 2016, Mr. Lau blogged, “We’re building a global multiplatform entertainment company. ... Hey Mickey Mouse: The next Disney is coming.”

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 - started on Wattpad, and which have each grossed tens of millions of dollars worldwide in the past two years. Two more films in the After series wrapped production last month. In total, Wattpad has 90 movie and television deals now 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. It has also began developing its own film and TV projects. Wattpad also sells advertising on its platform.

But the company’s grand 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 through its “paid stories” program. In that effort, launched in 2019, Wattpad charges for access to stories by some authors, with whom it splits the proceeds. The effort has already generated payouts of more than $1-million to writers based on just a small number of authors participating. The company is hoping for vastly higher revenue by expanding the program globally in the near future.

Wattpad has also benefited from widespread sheltering-at-home during 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. 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, the company said.

The company has raised more than US$115-million to date from Canadian and U.S. venture capital firms, including Golden Ventures, Version One Ventures, OMERS Ventures, Framework Venture Partners, Union Square Ventures and Khosla Ventures, as well as global investors Times Bridge and Chinese internet giant Tencent Holdings Ltd..

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