The author is an analyst with NH Investment & Securities. He can be contacted at [email protected] – Ed.
NAVER’s core businesses continue to show rapid sales growth, testifying to its growing influence in a wide variety of lucrative fields including advertising, commerce, content and the cloud. Its PO is growing at a relatively slower pace than sales due to increased spending on stock options and marketing, but with base effects yy already cooked, profits are expected to normalize from 2022.
Showing significant profit growth in all business areas
– We maintain a buy rating and a TP of 550,000 W on NAVER. With all business divisions experiencing high growth, it is positive that research announcements, which are the cash cow and the backbone of the business, are on the rise. Despite a 2Q21 delivery strike, trade sales are expected to continue growing and the company is expected to post attractive earnings growth throughout 2H21.
– In NAVER’s research platform business, display ads are showing strong growth thanks to a recovering advertising market and an expanding space for successful display ads. In particular, we are forecasting double-digit growth in the search ads business, which is important not only as a core business of portals, commerce, webtoons, blogs, etc., but also as a cow milk company.
– In the retail sector, NAVER launches a grocery service with Emart in 4Q21 and experiences strong growth in GMV Smart Store and Brand Store thanks to close cooperation with CJ Logistics, thus strengthening NAVER’s presence as an actor number one in online commerce.
– Webtoon completed the Wattpad acquisition in May 2021 and began producing content in earnest by launching Wattpad WEBTOON Studios. A business renewal process is to be completed in Japan with the launch of LINE Manga 2.0 in July, and the company is to expand production and sourcing of original content.
2Q21 review: profits exceed expectations
– NAVER announced sales in 2Q21 of W1.66tn (+ 30.4% yy, + 11.0% qq) and a PO of W335.6bn (+ 8.9% yy, + 16.2% qq), with a PO exceeding both our estimate of W306.7bn and the consensus of W327.1 billion. OPM improved to 20.2% (vs. 19.3% in 1Q21) in line with growth in search ad sales.