Earnings Grow across All Business Domains
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
NAVER’s major businesses are continuing to display rapid sales growth, testifying to its expanding influence in a wide variety of lucrative fields, including advertising, commerce, content, and cloud. Its OP is growing at a relatively slower pace than sales due to increased expenses related to stock options and marketing, but with y-y base effects already baked, earnings are set to normalize from 2022.
Displaying significant earnings growth across all business domains
- We maintain a Buy rating and a TP of W550,000 on NAVER. With all business divisions recording high growth, it is positive that search ads, which are the cash-cow and the backbone of the firm, are on the rise. Despite a delivery strike during 2Q21, commerce sales should continue to expand, and the company is expected to show attractive earnings growth throughout 2H21.
- At NAVER’s search platform business, display ads are showing high growth on the back of a recovering advertising market and expanding space for performance display ads. In particular, we expect double-digit growth in the search ads business, which is important not only as the main business of portals, commerce, webtoons, blogs, and etc, but also as the company’s cash-cow.
- In the commerce business, NAVER is launching grocery service with Emart in 4Q21 and is seeing steep growth in Smart Store and Brand Store GMVs through extensive cooperation with CJ Logistics, altogether expanding NAVER’s presence as the number-one online commerce player.
- Webtoon completed the acquisition of Wattpad in May 2021, and began content production in earnest by launching Wattpad WEBTOON Studios. A business renewal process is to be completed in Japan with the launch of LINE Manga 2.0 in July, and the firm is to expand production and sourcing of original content.
2Q21 review: Earnings surpass expectations
- NAVER announced 2Q21 sales of W1.66tn (+30.4% y-y, +11.0% q-q) and OP of W335.6bn (+8.9% y-y, +16.2% q-q), with OP beating both our estimate of W306.7bn and consensus of W327.1bn. OPM improved to 20.2% (from 19.3% in1Q21) in line with search ad sales growth.