[Click eStock] "Unusual Signs at Naver... Imminent Timing for Shopping Spin-off"

Completion of Naver Shopping Ecosystem... Time for Spin-off
Collaboration with Search, Finance, Content Matures... Independence Needed for Further Growth
Still Leading Untact Sector... Strong 3Q Performance Expected

[Asia Economy Reporter Minwoo Lee] Expectations are growing for the independence of Naver's (NAVER) shopping division, a leading figure in the non-face-to-face (untact) culture. It is anticipated that Naver's overall growth is possible due to the government's Korean New Deal and the growth of online shopping.

On the 7th, Meritz Securities maintained a 'Buy' rating on Naver and raised the target price by 25% to 400,000 KRW. The previous closing price was 328,500 KRW. This is because the demand for online shopping has increased further due to the spread of untact culture amid the COVID-19 crisis, which has raised its potential.

This year, Naver Shopping's expected transaction amount is projected to be 30.3 trillion KRW. It is said to have firmly established its position as the number one shopping platform in Korea by growing 51.6% compared to last year. Donghee Kim, a researcher at Meritz Securities, explained, "While the global e-commerce market is experiencing super growth by rapidly absorbing offline demand due to COVID-19, Naver Shopping is leading the domestic untact consumption trend. It has been growing rapidly by launching 'Brand Store' in February, 'Shopping Live' in March, 'Fulfillment (the entire process from product purchase to order and delivery)' in April, 'Plus (membership)' in June, and a grocery shopping service in August." Additionally, with the launch of A Holdings, if synergy with Yahoo Japan becomes visible, overseas expansion is also expected.

In this situation, expectations for the independence of Naver Shopping are also increasing. The ecosystem of Naver Shopping is already considered complete. Collaboration with other Naver services such as search, finance, and content has matured through recommendations (AiTems), payments (Naver Pay), savings (Naver Bank), delivery (4PL), and benefits (content). It is analyzed that now is the time to establish an independent corporation for faster decision-making by business units, strengthening financial and business collaboration through external investment attraction, and enhancing expertise and competitiveness.

Competitor Coupang is already accelerating. It is reported that in an investor presentation to overseas institutional investors last August, Coupang presented a corporate value of 13 billion USD (approximately 15 trillion KRW). Coupang's expected total transaction amount (GMV) this year is around 23 trillion KRW, and its corporate value has sharply increased from 5 billion USD in 2015 and 9 billion USD in 2018. It is interpreted as a strategy to secure economies of scale through a Nasdaq listing next year while expanding into clothing, fresh food, and food delivery sectors.

Researcher Kim said, "Both companies are leading the growth of the e-commerce market this year, and especially Naver Shopping's potential is limitless. The ability of platform operators who manage traffic and data is becoming increasingly important for shopping operators, and Naver is advantageous in terms of ease of management due to low inventory and logistics risk burden, as well as cash-generating power and capital strength through shopping advertisements."

There are also forecasts that the third-quarter performance will be stable due to increased shopping transaction volume and advertising revenue growth. Meritz Securities expects Naver to achieve sales of 2 trillion KRW and operating profit of 280.1 billion KRW in the third quarter of this year, which is an increase of 20.5% and 38.6% respectively compared to the same period last year. Advertising revenue in the third quarter is expected to increase by 13.3% year-on-year to 173 billion KRW. Business platform sales are also estimated to increase by 13.2% to 814.4 billion KRW during the same period due to strong shopping advertisement performance. The growth rate of shopping transaction volume is expected to maintain around 60% in the second half of the year following the first half. Researcher Kim explained, "New shopping categories such as live commerce, brand stores, and special price warehouses are expanding, and the growth of Smart Store is particularly remarkable."