[Click e-Stock] "NHN, Non-Gaming Segment Profitability Improves... Earnings Growth Gathers Pace"

Korea Investment & Securities maintained its "Buy" rating and target price of 45,000 won for NHN on the 26th. It analyzed that the key drivers of the share price rally are the strengthening of the company’s earnings power confirmed after the announcement of its fourth-quarter results last year, and the improvement in profitability of non-gaming businesses such as the cloud division.

On this day, Jeong Hoyoon, a researcher at Korea Investment & Securities, explained the recent share price rise of NHN, saying, "There are positive factors such as the launch of new titles in the game division this year and the easing of regulations on web board games, but more importantly, we should focus on the fact that fourth-quarter operating profit significantly exceeded market expectations, fundamentally boosting the company’s earnings power."

Jeong particularly focused on the earnings improvement in the non-gaming divisions. In the past, the game division had a structure in which 70% of revenue growth, excluding app store fees, was directly converted into profit. Recently, however, revenue growth in non-gaming areas such as the technology division has also been translating into improved profitability.

In fact, in the fourth quarter of last year, revenue in the game division grew 6.7% quarter-on-quarter, showing only limited growth, whereas revenue in the technology division surged 24.5% quarter-on-quarter, driving profitability in the cloud segment. Jeong pointed out, "The cost-cutting efforts that NHN has been pursuing for a long time in its non-gaming divisions have begun to yield earnings improvement as they coincide with revenue growth."

The annual performance trend of the non-gaming divisions is also positive. The non-gaming segment recorded net losses of 124.9 billion won in 2023 and 290.2 billion won in 2024 (including one-off costs related to TMap), but by the third quarter of last year on a cumulative basis, the loss had been sharply reduced to 17.4 billion won. Jeong said, "The steady restructuring of Payco, the reduction in losses from the cloud business, and the winding down of the loss-making China commerce business have all made significant contributions to improving profitability."