NAVER
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
We expect both NAVER’s share price and its earnings to turn around from 2Q23. Although the firm’s 1Q23 earnings will likely arrive sluggish, we believe they will mark the bottoming out point. Advertising execution should increase from 2Q23 upon some signs of a coming economic recovery in 2H23.
Time to focus on likely earnings rebound from 2Q23
We maintain a Buy rating and our TP of W270,000 on NAVER. The company’s ad and commerce business earnings growth have inevitably been sapped by unfavorable economic conditions, but attention needs to be paid to the timing of an anticipated gradual earnings rebound.
With Covid-19 benefits disappearing from 2Q22, a subsequent economic slowdown has blunted NAVER’s earnings growth. That said, we believe that focus should now turn to anticipated earnings and share price improvement in response to: 1) likely higher earnings growth from 2Q23 on low-base effects; 2) semi-peak season (2Q) effects for the firm’s advertising and commerce domains; and 3) an expected gradual strengthening in advertising revenue from 2Q23 upon some signs of a coming economic recovery in 2H23.
1Q23 preview: OP leverage effects to be hefty upon sales rebound thanks to cost controls
On a consolidated basis, we expect NAVER to post 1Q23 sales of W2.3tn (+24.9% y-y, +1.4% q-q) and OP of W303.2bn (+0.5% y-y, -9.9% q-q), with OP missing consensus of W324.1bn. Amid a general economic slowdown, sales growth at NAVER’s display ad business was likely tepid, and we believe its commerce earnings weakened q-q.
Starting from 1Q23, Poshmark is now to be reflected in NAVER’s consolidated earnings. We believe that Poshmark’s operating losses were held to W13.5bn in 1Q23 thanks to workforce restructuring and better efficiency.
NAVER looks to be well controlling its operating expenses, a strategy which should usher in significant OP leverage effects upon a sales rebound. We estimate that 1Q23 labor costs decreased to W536.6bn (+13.7% y-y, -4.4% q-q) and that marketing costs amounted to W313.6bn (-0.4% y-y, -2.5% q-q).