[Into the Stocks] Regaining 3rd Place in Market Cap... NAVER Looks Better in the Second Half

[Asia Economy Reporter Minji Lee] As Naver (NAVER) continues its record-high streak for the second consecutive day, attention is focused on whether it can firmly secure the third place in market capitalization (market cap), surpassing Kakao. The securities industry expects solid second-quarter earnings, with growth in content and commerce sectors potentially driving the stock price higher in the second half of the year.

Heated Battle for 3rd Place in Market Cap

The competition between Naver and Kakao for third place in the KOSPI market capitalization has resumed. About a month after Kakao overtook Naver on June 14th, leveraging its subsidiary's IPO boost and platform competitiveness to claim third place, the situation has reversed. As of the previous day, Kakao's market capitalization stood at KRW 71.558 trillion, while Naver's was KRW 72.4401 trillion.

Looking at stock returns this year, Kakao has outperformed Naver significantly. Kakao surged 109.24% compared to the end of last year, whereas Naver achieved a 42.73% gain. Considering that the KOSPI rose 13.8% during the same period, both stocks showed substantial increases, but individual investors' demand concentrated on Kakao, resulting in a relatively larger rise. Notably, Kakao's stock price jumped about 30% last month, attributed to individuals purchasing KRW 1.1804 trillion worth of Kakao shares, second only to Samsung Electronics (KRW 1.33 trillion) in net buying volume.

Recently, the main driving forces behind Naver's stock price increase have been institutional and foreign investors. Institutions have purchased KRW 121.5 billion worth of Naver shares this month, and foreigners have bought KRW 80.3 billion worth.

Second Quarter Operating Profit Expected at KRW 327.5 Billion

According to financial information provider FnGuide, Naver's estimated second-quarter revenue is KRW 1.6141 trillion, with operating profit projected at KRW 327.5 billion. Revenue is expected to increase by 26% compared to KRW 1.276 trillion in the second quarter of last year, and operating profit is forecasted to rise 6% from KRW 308.1 billion in the same period last year. The securities industry anticipates results that will exceed market consensus.

All business segments?including Search Platform (search, display), Commerce (shopping), Fintech (pay services, digital finance), and Content (webtoons, music, V LIVE, Snow)?are expected to record solid profits. According to Ebest Securities, the Search Platform segment's revenue is projected to grow 20.9% year-over-year to KRW 820 billion. The Search Platform is expected to achieve its best performance due to significant growth in the display advertising sector compared to the previous year. Additionally, Commerce (40%), Fintech (40%), Content (21%), and Cloud (35%) segments are also predicted to continue improving their performance.

However, the burden of stock compensation costs, which began to be reflected from the previous quarter, is expected to continue into the second quarter. As Naver raises employee salaries and expands stock compensation expenses, costs approaching KRW 80 billion are anticipated in the second quarter. The steeper the stock price rise, the greater the development and operational cost burden, inevitably reducing operating profit. In the first quarter, Naver recognized KRW 70.9 billion in stock compensation costs, which led to a decline in operating profit compared to the previous quarter.

Will the Target Price Surpass KRW 600,000?

As of 11:20 AM on the day, Naver's stock price stood at KRW 441,500, up 0.11% from the previous trading day. The stock price rise was stimulated by a positive earnings forecast from a foreign securities firm. The day before, Goldman Sachs projected that Naver would demonstrate stable performance in the future and set a target price of KRW 550,000. For the second quarter, they expected revenue to increase about 20% year-over-year due to rapid growth in the Search Platform segment. The shopping segment's growth is also anticipated to remain robust. Naver Shopping's transaction volume in the second quarter is expected to rise 46% compared to last year.

Domestic securities firms are also raising their target prices based on favorable earnings forecasts. The highest target price currently proposed by a domestic securities firm is KRW 580,000. Ebest Securities expects that if Naver aggressively promotes the value of its platform business in the second half, the stock price momentum will continue sufficiently. The drop in market cap ranking last month was because Kakao actively promoted platform value through bold decisions such as participating in the internet-only bank business, spinning off and pursuing IPOs for platform-centered new businesses.

Researcher Jonghwa Sung of Ebest Investment & Securities said, “If business achievements such as synergy from the partnership with Emart and the management integration synergy of Line Yahoo Japan are demonstrated, or if platform business value is effectively promoted, strong stock price momentum can be formed,” adding, “Expectations for the metaverse (Zepeto) platform also remain valid.”

Among business segments, the content sector's growth is noteworthy. Naver is expected to adopt a super-gap strategy encompassing webtoons, web novels, K-pop, and dramas in the content sector. Accordingly, Naver recently secured a 15.4% stake in OTT (over-the-top) provider TVING. Additionally, having completed the acquisition of the web novel platform Wattpad in May, synergy business is expected to begin in the second half of the year. Researcher Hyunjun Hwang of DB Financial Investment said, “The commerce sector will accelerate growth from the second half with strengthened dominance through grocery shopping and fast delivery, along with diversification of revenue models,” adding, “The Smart Store model will be introduced to Japan through Z Holdings, enabling regional expansion of the commerce business.”

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