NAVER
The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
NAVER’s generative AI service HyperCLOVA X, which is set to be unveiled this summer, should prove more competitive than the offerings of global rivals, at least in Korea. With its long-term investments soon to bear fruits, NAVER is poised to level up via the application of AI to major businesses.
Earnings bottoming out; business to pick up once again
We maintain a Buy rating and TP of W270,000 on NAVER. Ad business, which has been sluggish due to economic jitters, should gradually seek to rebound in 2H23 alongside cost-reduction efforts. Meanwhile, NAVER’s generative AI model HyperCLOVA X is on track to be unveiled this summer. The AI model is planned to be applied to major businesses such as advertising, commerce, and content, which should push up user numbers, traffic, and sales, and in turn bring benefits to sellers, advertisers, and investors.
Poshmark, one of NAVER’s global ventures, is displaying a faster-than-expected turnaround to surplus in EBITDA, and backed by application of the firm’s technology, earnings normalization should arrive quickly.
In addition, NAVER has announced its shareholder return policy for the next three years, which includes cash dividends totaling 15~30% of FCF and the incineration of treasury shares (1% of total outstanding shares; 3% in total) each year. With NAVER’s decision falling in line with that of global big tech companies, favorable share price effects are anticipated.
1Q23 review: OP tops expectations
NAVER posted consolidated 1Q23 sales of W2.3tn (+23.6% y-y, +0.4% q-q) and OP of W330.5bn (+9.5% y-y, -1.8% q-q), with OP exceeding both our estimate of W303.2bn and the consensus of W307.1bn.
Sales of display ads were sluggish due to economic slowdown, but search ads performed relatively well. Also positive were the controlling of marketing and labor costs (excluding Poshmark) and accounting changes regarding the depreciation period for some assets (savings of W22.5bn vs 4Q22).