Operating Profit Growth Below Expectations
Slowdown in E-commerce Growth
Securities Industry Lowers Target Price to Low 400,000 Won Range
[Asia Economy Reporter Kwon Jae-hee] Despite Naver recording its highest-ever performance in the fourth quarter of last year, securities firms have consecutively lowered Naver's target stock price. Although solid results were achieved across all sectors including search platforms, commerce, and fintech, this is interpreted as due to a low operating profit growth rate and a slowdown in the growth of the e-commerce market.
According to the securities industry on the 28th, Korea Investment & Securities and DB Investment & Securities lowered Naver's target stock price to 450,000 KRW. SK Securities adjusted its previous target price of 500,000 KRW downward by 18% to 410,000 KRW.
On the 27th, Naver announced that its consolidated sales for last year reached 6.8176 trillion KRW, and operating profit was 1.3255 trillion KRW. This represents increases of 28.5% and 9.1%, respectively, compared to the previous year (2020). For the fourth quarter of last year, sales amounted to 1.93 trillion KRW and operating profit was 351.2 billion KRW. These figures increased by 27.4% and 8.5% year-on-year, marking the highest quarterly sales and operating profit ever recorded.
Despite Naver’s “record-breaking” performance, securities firms have consecutively lowered Naver’s target stock price based on the judgment that the growth of the e-commerce market will slow down. Although Naver’s sales growth rate was 30% in the first half of last year and 27% in the second half, overall costs such as labor expenses, partner commissions, and marketing expenses increased, resulting in an operating profit growth rate of only 9%, which is raising market concerns.
Jung Ho-yoon, a researcher at Korea Investment & Securities, analyzed, "Concerns about the slowdown in the growth rate of the domestic e-commerce market are gradually emerging, and Naver is increasing marketing related to commerce, which is raising the cost burden of the commerce division."
However, the investment opinion was maintained as a buy due to external growth centered on fintech and content, as well as solid fundamentals. Naver stated during this “conference call” that it will focus on external growth rather than margin improvement for the time being. Accordingly, Naver’s position is that margin improvement through cost reduction will naturally occur once investments in high-growth divisions such as commerce, fintech, and webtoons are somewhat completed.
Hwang Hyun-joon, a researcher at DB Financial Investment, said, "Naver Pay, Naver’s simple payment service, recorded a transaction amount of about 38 trillion KRW in 2021, an increase of 46% compared to the previous year, surpassing the 28% growth rate of Naver Shopping’s transaction amount," adding, "Although costs will continue to increase this year due to rising labor costs and aggressive marketing, investors should seize buying opportunities based on solid fundamentals centered on fintech and content."
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