[Click eStock] "Naver, Commerce Trends Upward Despite Increased Marketing Costs"

Low Possibility of Developing AI Models Like DeepSeek
Service Enhancement Possible Through Adoption of External Models

Naver achieved solid revenue in the fourth quarter of last year, driven by steady core business growth. However, excluding one-time settlement payments related to Japan's Line Yahoo, operating profit fell short of market expectations (consensus). It is expected that growth will continue as the e-commerce sector recovers.

On the 10th, Daishin Securities maintained its 'Buy' rating and target price of 260,000 KRW for Naver for these reasons. The previous trading day's closing price was 225,500 KRW.

Naver recorded revenue of 2.8856 trillion KRW and operating profit of 542.4 billion KRW in the fourth quarter of last year, representing increases of 13.7% and 33.8% respectively compared to the same period the previous year. This performance included one-time settlement payments related to the termination of service provision for Line Yahoo (LY). Excluding these, revenue was 2.8269 trillion KRW and operating profit was 494.7 billion KRW, which is lower. While revenue met market expectations, operating profit fell short due to factors such as increased stock compensation expenses and marketing costs.

Specifically, search platform revenue grew 14.7% year-over-year to 1.0647 trillion KRW. Search advertising (SA) and display advertising (DA) revenues increased by 11.0% and 9.7% respectively compared to the same period last year. For SA, growth in Place ads and expansion into external media were key drivers. DA maintained solid growth through feed space expansion and advanced targeting.

Commerce revenue also returned to growth after five quarters, increasing 17.4% year-over-year to 775.1 billion KRW. Commerce advertising grew 10% year-over-year and quarter-over-quarter following the launch of the Plus Store in October last year. Transaction volume also increased by about 6% annually due to partnerships with Netflix and improvements in delivery speed.

Marketing expenses rose 25.6% year-over-year to 447.7 billion KRW. Marketing costs in the commerce sector are expected to continue increasing this year, but analysis suggests this will not harm profitability.

Naver's recent stock price rose after Chinese AI startup DeepSeek unveiled the R1 model, which can be trained relatively inexpensively. However, expectations that Naver can develop low-cost AI models on its own appear limited. Lee Ji-eun, a researcher at Daishin Securities, stated, "It is realistic to enhance services and achieve traffic and revenue growth by cheaply applying external models to existing Naver services. It is difficult to be confident in the possibility of developing inexpensive AI models like DeepSeek, and even if developed, securing competitiveness and differentiation would be challenging."