[Click eStock] "NAVER, Stock Price Rebounds... Weak Compared to Profit Growth"

Daol Investment & Securities maintained a target price of 260,000 KRW and a buy rating on NAVER on the 7th, stating that "the stock price rebound may be weak compared to profit growth."

Researchers Kim Hajung and Cha Yoonji from Daol Investment & Securities analyzed, "The growth rate of the core display advertising business has rebounded, but the strong earnings were mainly contributed by the reduction of losses in subsidiaries."

They viewed the core business rebound as driven by advertising spending on Chinese platforms, which can also be interpreted as offsetting the momentum of commerce growth.

For the same reason, they forecast a lower revenue growth rate compared to the high operating profit growth rate this year, and assessed that if revenue growth is weak, the stock price rebound could be relatively weak.

In the first quarter, NAVER recorded an earnings surprise with revenue of 2.53 trillion KRW and operating profit of 439.3 billion KRW. Although the growth rate of display advertising (DA) recovered, the revenue scale increased by only 10.1 billion KRW compared to the same period last year. Even assuming a DA profit margin of 35%, the impact on profit is only in the tens of billions of KRW. They analyzed that the rebound in DA is difficult to regard as the cause of operating profit growth.

The earnings surprise was more significantly contributed by improvements in the profitability of subsidiaries. The content division's profitability improved by 65.5 billion KRW year-on-year due to the exclusion of NAVER Z from consolidation, cost efficiency measures, and monetization of webtoons. The cloud division improved profitability by 18.3 billion KRW year-on-year and 29.5 billion KRW quarter-on-quarter, reflecting the performance of the highly profitable AI business even in the off-season.

They judged that if such cost efficiency and monetization-centered subsidiary profitability improvements continue, achieving operating profit growth of 1.8 trillion KRW in 2024 is fully possible. Even assuming a conservative DA growth rate, the core business profit margin has stabilized due to monetization of the C2C platform, and the deficit in the content division has significantly decreased.

However, they assessed that the stock price rebound may be weak compared to growth. This is because no strong momentum has been confirmed in the core business or new businesses to overcome the recent multiple decline. Although the rebound in advertising is positive, it is influenced by Chinese commerce platform advertising aggressively competing in commerce, which can be interpreted as offsetting the growth rate of commerce. They also analyzed that there are no clear results yet in AI-related new businesses in both B2B and B2C sectors.

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