Eye-catching Sales Growth
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Eye-catching sales growth across all of NAVER’s major businesses (including ads, commerce, content, fintech, and cloud) is set to sustain throughout 2021.
Sales growth first, then OP growth
- We maintain a Buy rating and a TP of W550,000 on NAVER. Solid sales growth across all of its business divisions (including ads, commerce, content, and fintech) should continue throughout 2021. While negative impact on OPM from increased costs (employee stock-option payouts) presents a concern, OP is primed to recover from 2022 in line with anticipated strong top-line growth.
- NAVER’s commerce business is leading the domestic e-commerce market. Having hit 53% y-y in 1Q21, GMV growth at Smart Store is set to rise further on: 1) the expansion of grocery shopping services in partnership (from Aug 2021) with E-Mart; and 2) continued solid performances for Brand Store and live commerce. Adding to anticipation towards its global earnings, NAVER is planning to launch Smart Store in Japan in 1H21.
- With the ad market recovering from Covid-19 effects, NAVER’s search platform business is showing strong earnings growth thanks to low-base effects. With its performance-based ads sales increasing rapidly, NAVER is planning to introduce the service on PC web browsers from 2Q21.
- NAVER Webtoon is expected to complete its acquisition process of Wattpad in May 2021 and show meaningful sales growth in 2H21. The business is to further profit from Wattpad, which presently does not have as many monetization vehicles as NAVER Webtoon. Meanwhile, having slowed slightly in 2020, Line Manga is also expected to show significant sales growth from 2H21 in response to a recent revamp and the addition of serialized contents.
1Q21 review: Earnings satisfy expectations
- On a consolidated basis, NAVER announced 1Q21 sales of W1.499tn (+29.8% y-y, -0.9% q-q) and OP of W288.8bn (-1.0% y-y, -10.8% q-q), with OP meeting both our estimate of W281.1bn and consensus of W294.9bn. Despite solid sales growth across of the company’s major businesses (from ads to commerce, webtoon, and cloud), overall OP recorded negative growth (y-y) on increased expenses stemming from employee stock-option payouts. The burden of this increased cost burden is likely to continue sapping OPM in 2Q21.