[Click eStock] "Naver Needs Momentum, 3Q Profitability Likely to Decline... Target Price Down"

[Image source=Yonhap News]

[Asia Economy Reporter Myunghwan Lee] DB Financial Investment announced on the 18th that it maintains a buy rating on Naver (NAVER) but lowers the target price from the previous 400,000 KRW to 290,000 KRW. This is due to expected profitability decline caused by the slowdown in the digital advertising market.

DB Financial Investment projects Naver's sales for this year to increase by 19% year-on-year to 2.1 trillion KRW, while operating profit is expected to decrease by 16% to 295.7 billion KRW. The operating profit is anticipated to fall short of the market forecast of 337.8 billion KRW.

Looking at each segment, the search platform is expected to see a lower growth rate due to a high base effect and the slowdown in the digital advertising market. Commerce, which has a high proportion of advertising, is also expected to experience a slowdown in sales growth due to weakness in the online shopping market. However, content is expected to maintain its growth momentum with the inclusion of eBook Japan and others.

DB Financial Investment diagnosed that momentum such as global IP is needed for Naver's stock price rebound. It explained that concerns about top-line growth exist as the advertising and e-commerce markets slow down due to the economic recession and other factors. Additionally, DB Financial Investment explained that the visibility of profitability improvement is decreasing due to increased costs such as labor and marketing expenses. It also pointed out that Poshmark, acquired recently as part of the global expansion strategy, negatively affected the stock price because it could lower Naver's mid-term profitability.

However, DB Financial Investment's analysis suggests that further stock price declines are unlikely. Researcher Hyunjun Hwang of DB Financial Investment said, "The underperforming stock price fell about 15% more in October, and based on the lowered expectations, the projected 2022 price-to-earnings ratio (PER) is 29 times, which is a low compared to the past," forecasting that additional declines will be limited.

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