[Click eStock] "Naver to Sail Smoothly Despite Monopoly Position Controversy"

Solid Performance Growth in 3Q... Webtoons and Advertising Both Rise
"Monopoly Controversy Is the Fate of Platform Companies... Growth Trend Will Continue"

[Asia Economy Reporter Minwoo Lee] Naver (NAVER), which has been repeatedly embroiled in monopoly position controversies at the Fair Trade Commission and the National Assembly audit, is expected to continue its steady performance in the third quarter with sales of 2 trillion KRW and operating profit in the mid-200 billion KRW range. This analysis confirms long-term growth drivers as the growth rates of major business units such as advertising, e-commerce, and webtoons exceed expectations.

On the 16th, Mirae Asset Daewoo forecasted that Naver would achieve consolidated sales of 2.01 trillion KRW and operating profit of 260 billion KRW in the third quarter. This represents an increase of 20.7% and 28.9%, respectively, compared to the same period last year. Sales across major business sectors are expected to grow evenly. Sales from the largest business platform and Line and other platforms are also expected to increase by 13.1% and 11.2%, respectively, compared to the same period last year. Content services such as webtoons are estimated to have risen 90.5% year-on-year to 108 billion KRW.

In particular, with e-commerce-related sales being separated as a distinct item in this earnings announcement, the market value of Naver’s e-commerce sector is expected to be reassessed going forward. According to the Statistics Korea, the average monthly transaction amount of e-commerce in July and August increased by 9.5% compared to the second quarter of this year. Mirae Asset Daewoo analyzed that Naver’s e-commerce transaction amount in the second quarter was about 6 trillion KRW, a 40% increase from the previous year. Previously, Naver announced that its market share of transaction volume among the Statistics Korea’s reported figures was 14.8% as of last year. Mirae Asset Daewoo estimated this to be higher, at around 16%. Given that Amazon in the U.S. and Alibaba in China have market shares of about 50% and 70%, respectively, it is analyzed that Naver’s e-commerce can grow significantly over the next 2 to 3 years.

Naver Webtoon is also rapidly establishing itself as a global content platform. As of the second quarter, Korea accounted for 43% of Naver Webtoon’s quarterly transaction volume. Among monthly active users (MAU), Korea accounted for 37%. In the third quarter, the Naver Webtoon business division changed its headquarters to Webtoon Entertainment in the U.S., and Line Manga sales began to be reflected in Naver’s consolidated webtoon sales. Accordingly, webtoon transaction volume is expected to grow 45% year-on-year. In particular, U.S. webtoon transaction volume increased by 134% compared to the previous year, leading the overall growth of Naver Webtoon.

Researcher Changkwon Kim of Mirae Asset Daewoo explained, "E-commerce will establish banner ads as a new cash revenue source in the third and fourth quarters of this year and in 2021 through the successful introduction of performance-based (targeted) advertising." He added, "Webtoons have achieved economies of scale with daily transaction amounts exceeding 3 billion KRW, and overseas expansion is progressing smoothly as the sales proportion in the U.S. and Japan increases, securing long-term growth drivers." Furthermore, the exclusion of the loss-making affiliate Line’s consolidated results from third-quarter profits and the formalization of equity method recognition of Z Holdings in the first quarter of 2020 are expected to lead to an upward revision of next year’s earnings per share (EPS) forecast.

The controversy over monopoly position at the Fair Trade Commission’s fine imposition and the National Assembly audit is also analyzed as not a major issue. It is an unavoidable reality that many traditional industries are becoming internet-based and large platform companies dominate the market, leading to various opposing arguments. Researcher Kim said, "In the past, the U.S. Federal Trade Commission ordered Microsoft (MS) to split the company, and the European Union (EU) imposed fines worth about 5 trillion KRW on Google in 2018, but stock prices were not significantly affected." He explained, "This is because the growth of the internet industry and companies is a global trend that cannot be stopped by any particular country or industry, and it is recognized as an inevitable long-term change."

Against this backdrop, Mirae Asset Daewoo maintained a 'Buy' investment rating on Naver with a target price of 430,000 KRW. The closing price on the previous day was 292,500 KRW.

This content was produced with the assistance of AI translation services.