Sluggish Margins Due to Higher Costs
The author is an analyst of KB Securities. He can be reached at drlee@kbfg.com. -- Ed.
Maintain BUY; lower target price to KRW420,000
We maintain BUY but lower our TP 10.6% to KRW420,000. We lower 2022E revenue/OP by 1.0%/5.3%, as OPM improvement has been delayed with slowing growth in key downstream markets (i.e., ad, e-commerce) and continual investment in new business.
Solid top line despite slowing downstream markets; sluggish margins due to higher costs
Naver recorded 1Q22 revenue/OP of KRW1.85tn (+23.1% YoY, -4.3% QoQ)/KRW301.8bn (+4.5% YoY, -14.1% QoQ), missing the market consensus by 1.7%/11.7%. Top-line growth was driven by major businesses, incl. Display (+20.5% YoY), Commerce (+28.3% YoY) and Contents (+65.9% YoY), despite slowing downstream markets. Although development/operating cost increases have eased (+19.8% YoY), costs for partnerships (+36.3% YoY) and marketing (+30.0% YoY) rose, lowering OPM to 16.4% (-1.9pp QoQ).
Revenue growth and cost controls are keys for future earnings
We forecast 2022 revenue/OP at KRW8.36tn (+22.6% YoY)/KRW1.55tn (+16.9% YoY). The main cash cow businesses should continue developing new revenue models and expanding market share. Of note, merchant solutions should become a key growth driver given sharp growth in vertical commerce services (e.g., brand stores, live commerce). The global expansion of webtoon services as well as entry into overseas e-commerce markets (i.e., Japan) should be key determinants of future growth; webtoon services are benefiting from the development of a global user base and improvements in transaction value/take rate. The increase in cross-border content is promising, and recently raised funds for video content should further diversify revenue. Despite ongoing efforts to control costs, margin improvement should be slower than previously anticipated because of aggressive investment in preemptive hiring (incl. M&A) in 2021 and marketing for new business.