[Click eStock] Disappointing Naver... 1Q Operating Profit 180 Billion KRW, Down 11% YoY

Decline in Advertising Revenue Expected Due to COVID-19... Content Sector Benefits from Reduced Outdoor Activities Atmosphere

[Asia Economy Reporter Minwoo Lee] Naver (NAVER) is expected to see its first-quarter sales increase by 16% compared to the same period last year, but operating profit is projected to decline by 11%. While it had been estimated that the impact of the economic slowdown due to the novel coronavirus (COVID-19) would be relatively less severe compared to other industries, the profit outlook is somewhat disappointing.

On the 7th, Eugene Investment & Securities forecast that Naver would achieve sales of 1.7491 trillion KRW and operating profit of 183.9 billion KRW in the first quarter of this year. Sales increased by 15.8% year-on-year, but operating profit decreased by 10.8%.

The main reason for the decline in operating profit is attributed to the slowdown in growth rate in the advertising sector. It is analyzed that consumer sentiment has contracted to a level comparable to the financial crisis, leading companies to reduce advertising expenditures. Additionally, e-commerce companies, which accounted for a significant portion of advertising space, scaled back marketing and promotions as demand surged due to COVID-19, which also had an impact. Researcher Younghoon Joo of Eugene Investment & Securities explained, "Reflecting this, we have lowered the estimated revenue for the company's advertising (CPM) segment to 146.3 billion KRW. However, the business platform segment is expected to continue double-digit growth (741.5 billion KRW, up 10.8% year-on-year) due to the increase in Naver Shopping transaction volume."

On the other hand, the content segment, centered on webtoons, is expected to benefit from a COVID-19-related tailwind. The trend of refraining from outdoor activities appears to have increased demand for online content. Sales are projected to reach 68.3 billion KRW, a 95.1% increase compared to the same period last year. Researcher Joo stated, "The global monthly active users (MAU), paid content users, and payment amount per purchaser continue to increase, which will significantly boost sales. The IT platform is also expected to see sales growth due to increased Naver Pay transaction volume and growth in Cloud & Works."

Accordingly, Eugene Investment & Securities maintained a 'Buy' investment rating on Naver with a target price of 240,000 KRW. The closing price the previous day was 173,000 KRW. Researcher Joo said, "The slowdown in advertising growth due to COVID-19 is expected to partially affect the second quarter as well, leading us to lower the annual operating profit estimate by 8.0%. However, there is no change in the growth direction centered on webtoons and fintech, and the advertising segment is also expected to recover quickly once the COVID-19 situation eases." He added, "Although the recent rapid increase in COVID-19 cases in Japan may impact the advertising performance of the Japanese subsidiary LINE, if the Japan Fair Trade Commission approves the management integration with Z Holdings, it will be classified as discontinued operations, so there is no need to view this as an additional concern."

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