[Click eStock] "Naver's Operating Profit Growth Rate to Rebound This Year"

[Asia Economy Reporter Kwon Jaehee] Korea Investment & Securities maintained a buy rating on Naver on the 28th, citing external growth and solid fundamentals. However, the target price was lowered to 450,000 KRW due to the expectation of a slowdown in the domestic e-commerce market growth.

Naver achieved sales of 1.93 trillion KRW and operating profit of 351.2 billion KRW in the fourth quarter of last year, representing increases of 27.4% and 8.5% respectively compared to the same period last year.

By segment, search platform sales reached 886.9 billion KRW, in line with market expectations. Commerce sales were 405.2 billion KRW, slightly below forecasts due to accounting changes related to Naver Plus Membership. Fintech sales recorded 295.2 billion KRW driven by high growth in external merchants, and content sales reached 233.3 billion KRW with strong growth in webtoons and Snow. However, operating expenses rose significantly by 32.6% year-on-year to 1.57 trillion KRW due to incentives and retirement benefits.

Despite the impact of COVID-19, Naver's sales growth rate was 30% in the first half of last year and 27% in the second half. On the other hand, the market is concerned that operating profit growth was only 9% due to overall increases in costs such as labor costs, partner commissions, and marketing expenses.

What is noteworthy is Naver's external expansion. During the recent conference call, Naver stated that it will focus on external growth rather than margin improvement for the time being. Accordingly, Naver expects natural margin improvement through cost reduction to occur once investments in high-growth business units such as commerce, fintech, and webtoons are somewhat completed.

Jung Hoyoon, a researcher at Korea Investment & Securities, said, "Although cost increases necessary for service expansion, such as marketing expenses, will continue this year, the growth rate of labor costs, which accounts for the largest portion of cost increases, is expected to slow down, so operating profit growth will rebound from this year." He added, "It is a time to seize buying opportunities based on solid fundamentals rather than uncertainties."

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