Improved Competitiveness Expected Despite Multiple Concerns
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Concerns over the economic slowdown and acquisition of Poshmark have already been reflected in NAVER’s share price. It is time to seek a rebound in terms of strengthened business competitiveness.
Improved competitiveness expected despite multiple concerns
We maintain a Buy rating and a TP of W270,000 on NAVER. Following the acquisition of Poshmark, an OP slowdown and OPM decrease are inevitable in 2023. Ad sales are slowing due to the economic slowdown, but after the off-season in 1Q, economic recovery should be seen from 2H23. We expect to see sales growth and profitability improvement at the fintech and webtoon businesses. Also, increased transaction value and e-commerce commissions at the commerce business (following the start of guaranteed delivery services) should help the firm maintain a top-two position alongside Coupang.
The acquisition of Poshmark is likely to negatively impact short-term earnings, but the mid/long-term impact should be positive thanks to extended global sales and the growth of the C2C secondhand trading market.
4Q22 preview: OP to slightly miss expectations
We forecast consolidated 4Q22 sales of W2.25tn (+16.5% y-y, +9.2% q-q) and OP of W343.8bn (-2.1% y-y +4.1% q-q). Despite sales slowdown, OP should arrive close to consensus of W349.5bn thanks to cost reductions.
While 4Q is traditionally a peak season, ad sales growth will likely slow due to the economic downturn. We believe that search platform sales upped only 4.9% y-y to W929.3bn (search ads: W665.0, +0.6% y-y; display ads: W258.6bn, +5.8% y-y). Commerce sales are predicted at W488.5bn (+18.7% y-y), maintaining stable growth of around 20% y-y throughout 2022. Content sales are predicted at W379.9bn (+73.7% y-y), reflecting stable transaction volume growth and the effects of an accounting recognition change (from net sales to total sales) for some webtoon content sales. We believe that earnings at the cloud business grew again following a 3Q22 slump, with sales of W117.6bn (+10.0% y-y) during the peak 4Q season.
Cost reduction is expected. In detail, development/operation expenses (including labor costs) likely stabilized at W555.0bn (+12.3% y-y, +6.5% q-q) and marketing costs likely came to W312.5bn (+2.9% y-y, -5.9% q-q), shrinking q-q thanks to reduced webtoon marketing costs.