[Click eStock] "Webtoon US Listing Is Not a Short-Term Upside Factor for Naver"

Korea Investment & Securities maintained a buy rating and a target price of 270,000 KRW on the 20th, stating that the Naver Webtoon IPO is unlikely to act as a short-term catalyst for Naver (NAVER) stock price appreciation.

Naver's flagship subsidiary, Naver Webtoon, is expected to pursue a U.S. listing in June. The listed entity will be Webtoon Entertainment, which oversees Naver’s webtoon business, with Naver holding a 71.2% stake.

Webtoon Entertainment holds 100% of Naver Webtoon, which manages the domestic webtoon business, and owns 70% of Line Digital Frontier (LDF), which operates the Japanese Line Manga platform.

Since Naver Webtoon holds the remaining 30% stake in LDF, Webtoon Entertainment effectively oversees Naver’s entire global webtoon business. The IPO valuation is projected to be around 4 billion USD, with approximately 500 million USD expected to be raised based on this valuation.

Korea Investment & Securities assessed Naver Webtoon’s fair value at around 5 trillion KRW. The only comparable listed peer is China’s Weiyuan Group, which operates webtoon and web novel platforms and IP businesses based on these. Currently, Weiyuan Group trades at a PSR of 3.2x for 2023 and 2.8x for 2024. Naver Webtoon’s estimated 2024 revenue is approximately 1.6 to 1.7 trillion KRW, which implies a fair value range of about 4.8 to 5.1 trillion KRW. Since Weiyuan Group’s core webtoon, web novel platform revenues, and IP business have all experienced continuous revenue declines since the second half of 2021, Naver Webtoon’s attractiveness may be relatively highlighted. However, Naver’s webtoon transaction growth rate slowed to 12.2% in 2023, which could act as a burden on the IPO valuation and subsequent stock price performance.

Researchers Ho-yoon Jeong and Ye-rim Kim of Korea Investment & Securities stated, “Unfortunately, the webtoon IPO is unlikely to serve as a short-term catalyst for Naver’s stock price.” They analyzed, “We value Naver Webtoon at about 5 trillion KRW, and several securities firms generally assign a valuation between 5 to 6 trillion KRW.” While the corporate valuation is not excessive considering market conditions and peer valuations, it is not sufficient to drive Naver’s stock price higher. Furthermore, considering the dilution of Naver’s stake post-IPO, there is a theoretical possibility that it could negatively impact the stock price.

The post-IPO period is more critical for Naver Webtoon. Until now, the webtoon division’s transaction volume and revenue growth have slowed due to reduced marketing expenses amid company-wide cost-cutting measures. Particularly, while the Korean and Japanese webtoon businesses have reached a certain level of maturity, the strategically important U.S. market still has low penetration and requires aggressive marketing. However, due to prolonged accumulated operating losses and headquarters’ cost controls, growth rates continued to decline throughout 2023. It is analyzed that funds secured through the IPO should be used to expand the user base via marketing and to discover IPs capable of global success, laying the foundation for long-term growth. From Naver’s perspective, the burden of continuously funding Naver Webtoon over a long period could be alleviated, which is viewed positively.

Naver’s investment focus is less on subsidiary-related issues such as the webtoon IPO and more on company-wide profit improvement driven by cost control and profitability enhancement in key business units. Operating profit in Q4 last year reached 405.5 billion KRW, surpassing the 400 billion KRW mark for the first time, and continuous profit growth is expected in 2024. Researchers Ho-yoon Jeong and Ye-rim Kim said, “This is a time to invest focusing on low valuation pressure and profit improvement.”