Rumors of Share Exchange with Big Hit Entertainment
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
Set to emerge as content sector bellwether via large investments
NAVER recently acquired Wattpad, the world’s largest web novel platform, boosting expectations for expansion of the content business. Wattpad is an open-source platform with 90mn monthly active users that has helped users turn their stories into books and films as in Netflix’s adaptation of The Kissing Booth. The platform generated KRW37.5bn in sales in 2020.
The acquisition by NAVER is expected to help Wattpad turn profitable going forward. The platform currently generates more than 50% of sales from ads and lacks monetization tools when compared to NAVER Webtoon, which has a high sales share of in-app payments (estimated at 75%). For NAVER, the takeover should strengthen the competitiveness of its webtoon platform with web novels adapted into webtoons and allow access to Wattpad’s original IP assets, which could be turned into video content.
Rumors of share exchange with Big Hit Entertainment
On January 22, one media outlet reported that NAVER is under talks with Big Hit Entertainment for a share exchange deal. NAVER’s spokesperson said that the company cannot confirm the news report, but the ambiguous response stands in contrast to its clear denial of recent bank acquisition rumors.
Whether the news is true or not, we note that NAVER is accelerating its efforts to build partnership with domestic entertainment agencies. The company has invested a total of KRW230bn in affiliates of SM Entertainment and YG Entertainment. Money has flowed both ways, with Big Hit Entertainment, YG Entertainment, and JYP Entertainment investing a combined KRW17bn in NAVER Z. Through the partnership, the agencies seek synergy between their artists and NAVER Z’s AR avatar platform Zepeto with 200mn subscribers. Market focus should increasingly turn to NAVER’s strong competitiveness as an operator of global platforms (V Live, Zepeto, etc.).
Target price raised to KRW410,000
We raise our target price for NAVER to KRW410,000, reflecting: 1) increased market valuation of overseas search platform and commerce peers; 2) enterprise value of newly-acquired Wattpad; and 3) 30% upward-adjustment of PSR applied to NAVER Webtoon on the recent success of webtoon-based video content (Sweet Home, etc.). Concerns that rising costs amid lack of growth momentum might weaken profitability have now dissipated with the content business gathering momentum. We also believe a domestic commerce rival’s IPO on the NASDAQ, if successful, will bring renewed interest in NAVER’s value as a commerce player.