[Click eStock] "Naver's 1Q Operating Profit Below Expectations... But Advertising Revenue Rises After a While"

Commerce Still Sailing Smoothly... Expanding Market Dominance

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Naver's search advertising performance, which had been sluggish, has reversed into a growth trend after a long time. It is analyzed that this will lead to improved performance along with the commerce sector, which continues to show solid results.

On the 30th, Hana Financial Investment raised Naver's target stock price by 9.8% to 450,000 KRW and maintained a 'Buy' investment rating, citing this background. The closing price the previous day was 366,500 KRW.

Naver recorded consolidated sales of 1.4991 trillion KRW and operating profit of 288.8 billion KRW in the first quarter of this year. Compared to the same period last year, sales increased by 29.8%, but operating profit decreased by 1.0%. Compared to market consensus, sales exceeded expectations by 0.79%, but operating profit fell short by 3.26%. Seungtaek Hwang, a researcher at Hana Financial Investment, evaluated, "Sales slightly exceeded expectations due to the recovery of growth in the search platform, but operating profit fell short due to increased labor costs caused by higher stock compensation expenses."

He emphasized the need to pay attention to advertising in the first quarter's performance. The search platform segment, where search advertising and display advertising grew evenly, recorded sales of 752.7 billion KRW, a 16.8% increase from the same period last year, exceeding expectations. Researcher Hwang explained, "Excluding growth after the introduction of performance-based advertising in the existing display advertising sector in May last year, the search advertising sector, which accounts for 37% of sales (based on the first quarter), had maintained a somewhat sluggish trend. Although the growth rate was only 2.6% in 2020, it is expected to draw a steep growth curve again due to UI and UX changes through recent search service reorganization and the influx of new advertisers due to product improvements."

Display performance-based advertising, currently only available on mobile, is also expected to expand to the PC version in the second half of the year, so overall advertising revenue growth is anticipated. Researcher Hwang predicted, "Based on this, display advertising sales are estimated to increase by 26.2% in 2021, and with a 10.3% increase in search advertising, total advertising sales will grow by 14%."

The commerce sector also continued to expand its scale, recording sales of 324.4 billion KRW, a 40.3% increase from the same period last year. Despite being an off-season, it increased by 2.4% compared to the previous quarter. With a 53% increase in Smart Store transaction volume and a 40% increase in the number of stores to 450,000, expectations for future growth remain strong. Researcher Hwang forecasted, "Especially with step-by-step advanced tools provided according to store growth, comprehensive support such as customer management, settlement, and finance, and realistically helpful fast settlements, Naver's market dominance and competitiveness in the commerce sector will continue to improve."

However, stock compensation expenses increased due to the rise in exercise price following the stock price increase (70.9 billion KRW in the first quarter), leading to an overall rise in labor costs. The burden is expected to continue due to stock options and stock grants (free allocation of company-held shares) for all employees going forward.

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