Ad Business to Drive 2H20 Results
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
We expect NAVER’s 2H20 results to be driven by a recovery at the ad business and the leading position of the commerce business. In addition, solid growth at the Cloud, V live, and B2B service businesses should help to drive up NAVER’s results and valuations.
Solid growth for overall businesses
We maintain a Buy rating on NAVER and raise our TP from W330,000 to W400,000. We believe that there is ample room for the company’s valuations to grow given its robust 2Q20 results, including Smartstore’s GMV growth of 64% y-y, NAVER Pay quarterly GMV of above W6tn, sound live commerce market earnings, Cloud revenue growth of 141% y-y, and NAVER Webtoon global MAU of above 64mn.
Expect significant ad business recovery in 2H20
We expect the ad business, which has shown a solid recovery since June, to drive NAVER’s 2H20 results. Compared to 1H20, the business platform and ad businesses should show stronger growth in 2H20, with revenue of W1.69tn (+15.5% y-y) and W382.4bn (+17.8% y-y), respectively. Led by the growing competitiveness of NAVER shopping, we predict that search ads and performance-based ads will lead revenue at the ad business. Smart Channel, which started in May, should significantly contribute to ad business revenue from 3Q20.
2Q20 results robust despite weak ad economy
NAVER recorded 2Q20 revenue of W1.9tn (+16.7% y-y, +9.8% q-q) and OP of W230.6bn (+79.7% y-y, +4.1% q-q), with OP exceeding our estimate (W213.6bn) and consensus (W226.1bn). Expanding performance-based advertising offset the weak overall results at the ad business, which was originally expected to show stagnant earnings due to Covid-19. The company registered solid growth not only for its business platform and IT platform businesses (driven by increased commerce GMV), but also for the rest of its businesses, including Cloud, V live, and Line Works. We expect NAVER to show solid growth in 2H20, mainly driven by the recovery of the ad business.