[Click eStock] "Naver to Go Further in 3Q... New Ad Revenue at Least 100 Billion Won"

Significant Expansion Expected in New Advertising Revenue... Operating Profit Margin 80-85% 'Prime' Income Source
Growth Anticipated in Pay, Webtoon, Financial Sectors... Possibility of 'Earnings Surprise' This Year↑

[Asia Economy Reporter Minwoo Lee] Naver (NAVER) is expected to post strong earnings in the third quarter as well. It is analyzed that a new advertising product, expected to generate at least 100 billion KRW in sales with an operating profit margin of over 80%, will demonstrate its power.

On the 26th, Mirae Asset Daewoo maintained a 'Buy' rating on Naver and raised the target price by 36.9% to 330,000 KRW. This is because the stock already reached a record high of 241,000 KRW the previous day, hitting the target price.

Even in the first quarter, when concerns about the novel coronavirus (COVID-19) increased, Naver, recognized as a leading untact (non-face-to-face) company, showed significant growth. Expectations are rising that Naver will achieve an 'earnings surprise' in the third quarter as well. It is analyzed that operating profit will grow rapidly as high-margin advertising revenue sharply increases from the third quarter.

Since revamping its mobile page last year, Naver has been pursuing various initiatives with its banner advertising (DA advertising) products in the first half of this year. In February, it expanded the performance-based advertising sales platform 'GFA.' On the 18th, it began selling a new advertising product called Smart Channel, which appears at the top of the mobile page. In June or July, it plans to launch a Special DA Premium type, priced 20% higher than the existing DA advertising product, and expand the number of sales slots from 8 to 10.

Through this, it is analyzed that Naver will generate new high-margin advertising revenue of at least 100 billion KRW with an operating profit margin of 80-85% in the third quarter. DA advertising has no variable cost linked to sales except for agency commissions. Since Naver has already achieved economies of scale that exceed fixed costs, most of the advertising revenue can settle as operating profit. Changkwon Kim, a researcher at Mirae Asset Daewoo, said, "Smart Channel alone is expected to generate at least 100 billion KRW in new annual sales," adding, "Considering online shopping market share, synergy effects with Naver Pay, the generalization of untact sales, bid-based advertising price determination, and targeting effects, the possibility of exceeding expectations is high."

There is also an analysis that even the minimum estimate of 100 billion KRW is conservative. Researcher Kim explained, "The 100 billion KRW is a conservative standard based on the annual sales level of the Brand DA advertising product displayed in the middle of Naver's mobile page," adding, "It seems possible to exceed the sales of Special DA, the main mobile advertising product displayed at the bottom of the search bar, which records annual sales in the 400 billion KRW range." He continued, "In the second half of the year, in addition to advertising revenue growth, positive factors such as continued growth in e-commerce, the global business turnaround to profitability of Naver Webtoon, and the full-scale launch of Naver Financial's financial business are expected," adding, "Once the merger between Line and Z Holdings, scheduled for October, is completed, the scope of consolidated earnings expansion will be even greater."