The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
Although it is too early to expect an economic rebound, the ad market started to gradually recover from October. Sales are expected to improve, along with an increase in commerce commission rates in 4Q23. Meanwhile, NAVER plans to gradually reveal its AI business model.
AI momentum building
We maintain a Buy rating and a TP of W310,000 on NAVER, continuing to offer the firm as our sector top pick. Expectations for 4Q23 earnings are likely to rise, as 3Q23 saw healthy earnings despite low seasonality. Also, the ad market started to gradually recover from October.
Both sales and OP at the commerce arm are predicted to climb from 4Q23, as commission rates for brand stores and guaranteed delivery services will be charged from 4Q23, which will also positively impact 2024 results.
Generative AI 'Clova X' and AI-based next-generation search service 'Cue:' (both based on 'HyperClova X') are resolving initial issues and upgrading their functions. Within 2023, B2B services (such as Clova for AD, Connect X, and Clova Studio) should also be reflected in the firm’s share price, with related momentum and expectations set to build as full-fledged business models are released.
3Q23 review: OP exceeds expectations
NAVER posted consolidated 3Q23 sales of W2.45tn (+18.9% y-y, +1.6% q-q) and OP of W380.2bn (+15.1% y-y, +2.0% q-q), with OP exceeding both our estimate of W370.8bn and consensus of W368.1bn.
Search ad sales (W898.5bn, +0.3% y-y, -1.3% q-q) were weak due to the economic slowdown. But, the commerce business performed well, with sales of W647.4bn (+41.3% y-y, +14.7% y-y excluding Poshmark). Total payment volume (TPV) at the fintech business also grew to W15.2tn (+22.5% y-y, 4.4% q-q). Efforts to controls costs continued, with marketing costs (W389.9bn, +1.7% q-q) remaining stable.