Focus on Global 3.0 Strategy
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
NAVER reported sluggish 1Q22 OP growth, owing to both slowing commerce and ad sales growth and rising labor costs. However, with all negatives now reflected, the firm’s share price should soon bottom out.
Focus on Global 3.0 Strategy
- We maintain a Buy rating on NAVER, but lower our TP from W550,000 to W410,000. The company has hiked salaries by 10% in line with the overall IT industry trend, which will negatively affect OP growth throughout 2022. We also lower our TP in consideration of the recent share price adjustment seen for growth stocks due to interest rate hikes.
- We now forecast 2022 sales of W8.1tn (+19.2% y-y) and OP of W1.4tn (+6.1% y-y). Our slashed OP growth estimate is attributed to increased labor costs. Also, with ad and commerce sales growth decreasing compared to last year, OPM is set to fall to 17.3%.
- That said, the e-commerce business should recover on the arrival of the peak advertising season in 2Q22. Also positive, issues such as the delivery worker strikes seen in 1Q22 have ended.
- Following the appointment of a new CEO, we advise paying attention to the company’s mid/long-term strategies. In particular, in line with its Global 3.0 Strategy (which targets 1bn subscribers and sales of more than W15tn within five years), the firm’s share price should rebound upon confirmed growth in the metaverse (centering on Zepeto), the introduction of new AI technology, and the expansion of both the Japanese commerce market and the North American/ European webtoon markets.
1Q22 review: Sluggish earnings recorded
- NAVER booked 1Q22 sales of W1.85tn (+23.1% y-y, -4.3% q-q) and OP of W301.8bn (+4.5% y-y, -14.1% q-q), with OP falling short of both our estimate (W354.9bn) and consensus (W341.6bn). Sales at the search platform business came to W843.2bn (+12.0% y-y, -4.9% q-q). Commerce sales rose to W416.1bn (+28.3% y-y, +2.7% q-q), with growth slowing due to low seasonality. Development/operation expenses jumped to W448.2bn (+19.8% y-y), affected by incentive payouts and recruitment costs, which caused OPM to fall to 16.4%.