Naver Corp Ord

I would like to thank the analysts and investors for joining Naver's 2024-21 earnings presentation. As always, we have CEOs Sooyoung Choi and CFO Nam Sung Kim joining us on our call today to walk you through Naver's business highlights and strategies and financial highlights, after which we will entertain your questions. Please note that the earnings results are KIFRS-based, provided for timely communications, and have not yet been audited by an independent auditor. and hence are subject to change after such review. With that, I will turn it over to our CEO to present on design highlights. Good morning, I'm Sian Choi, the CEO. Naver underwent organizational restructuring in early April, dividing its existing five CICs into 12 specialized units, product and platform focused on developing and designating New user experiences and technologies, business and services dedicated to exploring new business opportunities and enhancing services and content involved in discovering and delivering content types tailored to user needs. With this reshuffle, we aim to specialize in refined expertise in advertising, shopping, and local markets to respond nimbly to market trends and proactively uncover new business opportunities. At the same time, through the product and platform unit, we aim to harness neighbors' core technologies such as AI, data, and search to provide differentiated experiences, fostering long-term technological growth, and accelerating the strengthening of neighbors' capabilities. Based on the revamped organization structure, we plan to gradually introduce high-quality personalized content in feed format on suitable platforms from April onwards. Starting with the show form service, Clip and Home Feed launched in the second half of last year and thereby ensure uninterrupted content exploration and consumption experiences. Such feed-based content experience will result in the increased time spent within the neighbor ecosystem, creating opportunities for seamless exposure of context-based advertising content. Ultimately, tailored advertisements will be delivered to users enhancing advertising efficiency and contributing to the strengthening of neighbors' capabilities as a media platform. In Q1, revenue from the search platform business increased by 6.3% year-on-year to $905.4 billion. Search revenue grew by 6.2% year-on-year, driven by expanded ad creatives from PowerLink and the introduction of competitive bidding within place ads. Display saw a 5.3% growth year-on-year, buoyed by strong performance ads, including spend of revenue from home feed advertisements and new advertiser wins. As mentioned earlier, we plan to strengthen our platform's capabilities by providing neighbors an entire suite of services in a feed format, including comprehensive search. And at the same time, we are going to also apply generative AI to enhance the competitiveness of our advertising platform. At the end of March, we implemented a responsive ad feature within the search ads by leveraging AI to display ad features in optimal combinations to maximize performance. We also started providing a feature that automatically generates AI copies based on LLM to help address the challenges faced by advertisers or agencies in registering ad copies. Furthermore, starting from April, we have been testing a solution that allows paid operators to utilize AI technology to summarize visitor reviews and suggest appropriate responses tailored to the reviews to improve services for both users and business owners. Moreover, we are progressively refining targeting technology to maximize ad effectiveness. On the service side, we're focusing on extending user time spent and generating new revenue streams based on hyper-personalization technology within DiverX. Zoom Feed is steadily expanding its user base, and the average daily clicks on our recommended content within the feed are growing even more rapidly, validating the quality of personalized recommendations and the overall product excellence. In Q2, we plan to pilot AI functionality in the area of document quality assessment, going beyond personalized content recommendations. In addition, we will introduce our personalization in the advertising domain and expand our lineup of feed-style ad products, based on hyper-personalization and offering new products to a diverse range of advertisers. For the short-form video service Clip, the number of Clip views has grown by over three times compared to the end of last year, and during the same time, the average views per user have increased by over two times, demonstrating the potential for the success of the service. We will enhance connections with vertical services such as PlaceClip Solutions in collaboration through brands sponsored the product, so that CLIP users have easy access to various labor services and generate new revenue streams. As a result of these various efforts, the average daily time spent on the labor app main page at the end of Q1 increased by 10% compared to the time spent prior to the application revamped at the end of last year, demonstrating growth potential. We anticipate that the limited to long-term home feed and CLIP will drive overall growth in time spent as a platform, the significant contribution labor use is currently making. And we believe this will enable the Neighbor app to successfully evolve into a sustainable and sound service. The data which started its better service at the end of last year is also steadily growing as it approaches its official launch on May 9th. In March, we received a cheat day MAU of 2.25 million and have been consistently increasing the number of users since the release. We are prioritizing user experience enhancement by adding new features such as video sponsorship and channel subscription based on various user feedback. After the official launch, we plan to explore service enhancements through updates such as mission sponsorship, clean clip sponsorship, and business channel provision. Also, we will continue our efforts to increase revenue by introducing neutral ads and expanding performance ads using the 2G platform. Furthermore, we expect to reduce our network usage fees by applying grid technology to the strategic service in the first half of this year. We will strive to further optimize the grid technology and build a streaming environment that satisfies both users and streamers. Next, I will provide an update on our commerce business. In Q1, David's overall commerce led GNV achieved 12.2.1% of 6% year-on-year, while on-platform GNV Excluding Outland Marketplace, I recorded 10.4 trillion won, up 9.4% year-on-year, driven by the continuous growth in brand stores and service GMP. Service GMP in particular showed sustained growth backed by improvements in case of real-time search and detailed search exposure, maintaining the uptrend from Q1 last year, while GMP surged as we transitioned from the endemic phase. Despite external competitive pressures, our brand stores continue to thrive, with both the number of participating brands and GMBs showing consistent growth. Especially the furniture and interior segments saw significant growth due to the spring rooting season and bidding season, while the food segment, collaborating with major brands, is also growing rapidly. As a result of the seasonal effects, the fashion apparel and accessory segments are also seeing significant growth propelling GMV. This year, we plan to strengthen strategic collaborations by jointly establishing annual marketing and promotion plans with top brands in sectors such as food and digital appliances. Furthermore, we aim to continue our growth by securing new partnerships with small and medium-sized brands in the living, fashion, and furniture industries. For the DRT delivery service, we have observed that substantial growth in GMV endeavors with high demand to afford fast deliveries such as kids, food, and beauty, demonstrating its effectiveness. In April, we introduced same-day delivery and Sunday delivery focusing on daily consumer goods and fashion categories to further enhance our guaranteed delivery service. We plan to gradually expand coverage to increase user convenience. Also, to enable more users to deliver, we have started offering a three-month free guaranteed delivery shipping benefit to Labor Plus members. Arbitrary business will turn around to profitability within just one year of acquisition, backed by growth in GMB and revenue in Q1, coupled with cost efficiency measures through a focus on its North American operations. In particular, 1P advertising revenue has grown nearly three times compared to last year, and we anticipate it to be a significant growth driver this year. Alongside the growth of push show and live streaming broadcast, we plan to enhance our competitiveness by introducing new research technology, and improving PoshLens, making it easier for sellers to find the products they want. In Q1, we capitalized on PoshFi's community and launched our key Fashion Posh show, selling products inspired by the latest Korean fashion trends. It recorded the highest influx of new viewers per show, and we anticipate it to evolve into a service that continues to attract new users. Moving forward, we intend to organize high-quality shows for our teams around highly sought-after merchandising categories through micro-communities. This will enable us to foster a substantial growth of live commerce in the relatively nascent U.S. market. Labor's commerce business started as an e-commerce venture, offering product and price comparison services for non-captive malls based on search. Since then, starting with Smart Store, Naver has embarked on creating its own unique ecosystem, evolving into a business that provides a seamless service flow, from search, shopping, and place, to payment and reservations. It's a platform that encompasses its needs, brands, and other platforms for inclusive growth, making it a one-of-a-kind platform in the world. Even as we speak, Calgary's local and international e-commerce platforms are conducting advertising, sales, and brand marketing within the Naver ecosystem. For example, a Chinese cross-border platform company has to be entering the Korean market, which certainly has become a major advertiser on Naver, similar to a leading Korean e-commerce platform. As such, we are growing together as partners. Naver aims to expand the domestic online ecosystem by growing together with users, sellers, and partners as a companion in the evolving market landscape. We're committed to providing convenient solutions to SMEs to help further their growth and strengthening Strategic collaborations are with brands by offering spaces and products tailored to their image, so as to upgrade ourselves as a brand marketing platform. Next, I'll let me provide updates on the FinTech business. In Q1, you've repeatedly achieved a TPV of 16.7 trillion won, up 24.8% year-on-year, and 2.2% Q2. Nonchalant TPV recorded 8.2 trillion won of 8.2% year-on-year, driven by holiday and back-to-school promotions, and further expanded neighbors' third-party ecosystem. Offline TPV also continued its growth trajectory, driven by increased SQR and MSC-based payments and O2O payments, and posted 2.2 trillion won, a plus of 174.1% year-on-year. After the introduction of Samsung Pay to NeuroPay's on-site payments system over the course of a year, NeuroPay was used at 1.43 million locations nationwide, leading to the expansion of NeuroPay's benefits and convenience. This in turn spurred growth into our reservation and order payments and created a virtual cycle. In our platform business, the value of the loan and parcel notaries are recorded at 1.6 trillion won, up threefold the quarter-on-quarter, best by the expansion of our product line of integration with various Neuro services. In particular, our Mortgage Loan Comparison Service and Auto Insurance Comparison Service have demonstrated their competitive edge in terms of comparison and recommendation features by offering users quick and convenient experiences. Furthermore, we have developed an alternative credit scoring model leveraging non-financial data for credit assessment called Newber Pay Score in collaboration with NYSE Information Service and started applying it to personal credit loan products offered by KBank and SBI Savings Bank by leveraging non-financial data. Based on 73 million cases of shit-alama ice out data, we plan to expand opportunities for better loan conditions. We plan to continue strengthening our platform business by including financial intermediation by expanding the lineup of loan insurance products and leveraging unique features of favor pay. Next, let me move on to WebToon's actual performance. The year 2023 marked a year of fundamental restructuring, and based on its groundwork, The year 2024 is poised to be the inaugural year for achieving both top-line and bottom-line growth. Under the strategy of focusing on our core strengths, involving resource allocation to key markets such as Korea, the U.S. and Japan, non-strategic asset divestments, and workforce optimization, the EBITDA and operating profit of Web2M further expanded compared to Q4 of last year. Despite the ongoing cost-efficiency measures implemented since last year, global GMV of Webtoon recorded 458.7 billion won, up 9% year-on-year, and 3% QoQ, powered by IP adaptations and adjustments made to the platform. In Japan, the increase in the proportion of original series and the lineup of blockbuster hits with a monthly GMV of more than 100 million yen continued to drive strong growth in GMV. In North America, IP adaptations, such as Mayor My Husband and promotions for local origin authors, including Messier and Haney, expanded the influx of new users, leading to sustained growth. Also in France, the release of new titles has led to an increase in paid users, contributing to continued high growth. In Korea, we plan to continue strengthening our platform by leveraging a robust user base, while updating users through personalization and advanced AI recommendation technologies. Platform-wide, Corelata was distributed evenly across content, IP, business, and advertising. In particular, advertising revenue in Japan surged by over three times year-on-year, driven by an expensive ad lineup. We plan to apply this successful formula to North America and further diversify our business model. As part of this roadmap, in North America, we have launched our EdPass, a rewarded ad model in Q1, where users can watch up to 30-second video ads to unlock one episode. In Q2, we plan to introduce the SuperLife model, allowing users to support creators by making donations for individual episodes. This will not only promote a more engaging fan community ecosystem, but also provide creators with new monetization opportunities, thereby reinforcing the cycle of valuable IP creation. For the IP business, various blockbuster hits have emerged from the diverse story portfolio of Webtoon, reaffirming the value of Webtoon IPs once again. Various Webtoon originals, such as TVN's Mayor My Husband, Netflix's Chicken Nuggets, and A Killer Paradox, have successfully transitioned to screen adaptations. After airing, the global Webtoon joint for Mayor My Husband increased 18-fold, while the global views for A Killer Paradox also saw a 44-fold increase, demonstrating the significant impact of original work. In Q2, several highly anticipated works are in preparation, including the 8th show, based on Webtoon Originals' money game and tie game, which will be released in Hessex. We will continue to diversify our IP business as we venture into video production, merchandise, publishing, gaming, and more to solidify our position as the global number one storytelling tech platform. Last but not least, I would like to share a new cloud topic to be business performance. Since its launch in November last year, the delivery of Neural Cloud featuring HyperClovaX has been progressing smoothly. By leveraging such references, we will continue to beef up efforts to expand our business to various sectors where security is crucial and internal AI services are needed. Businesses are increasingly building dedicated models or AI services using HyperClovaX. Today, over 2,000 companies and research institutions are using Clova Studio. And we are collaborating with various businesses and institutions in sectors such as finance, education, law, retail, and gaming to build innovative services based on hybrid ClovaX. In fact, we signed an MOU with the Bank of Korea last December to undertake the financial and economic digital innovation initiative, and the process towards finalizing the agreement has been progressing smoothly. Also in March, we signed an MOU with Hyundai to collaborate on cloud migration and AI commercialization. The goal is to leverage AI services to launch our services in integrating AI technology across various industries, starting with finance, shipbuilding, and maritime shipping. To further accelerate the expansion of the neighbor-centric AI ecosystem, NeighborCloud launched the Dash model at the end of April, which offers higher speed and lower cost compared to existing models. Dash is expected to alleviate the burden on enterprises adopting generative AI by mixing various tasks at a cost that is one-fifth of the previous models. Going forward, we plan to continue expanding our model lineup to provide a variety of tailored options considering the types of tasks and costs so as to promote the adoption of AI among enterprises. Finally, NeighborCloud announced a joint research project with Intel in April to build an AI chip ecosystem. Together, we will establish and operate an AI joint research center to build a new AI chip software ecosystem based on Gaudi. Naver plans to lead these research efforts and expand the AI ecosystem centered on HyperClovaX. Naver will focus on practically identifying new business opportunities based on more specialized and dedicated organizational structure this year. We will constitute a leveraging AI and data tool for differentiated experiences and accelerating the assessment of the core competitiveness of our products and platforms. Next, CFO number two will walk you through Q1 financial performance. Good morning, I am C.S. Vo. I will present Q1 financial results. In July, we recorded a revenue of 2.5261 trillion won, up 10.8% year-on-year, but down by 0.4% Q2. Adjusted EBITDA in Q1, excluding variables such as stock-based compensation and depreciation and amortization expenses, recorded $581.1 billion, up 19% year-on-year and 0.2% QOQ, driven by improved content profitability and Poshmark's increased operating profit and slowly stable upward trend. OP margin in Q1 recorded 17.4%, up 1.4% QOQ because of temporary reductions in stock-based compensation expense due to stock price volatility, and the exclusion of neighbor Z's consolidation. For your information, we conducted structural adjustments at equity holdings through transactions with LY Corp. to rationalize the structure of Snow and to encourage the autonomy and operational efficiency of neighbor Z, a subsidiary of Snow. By taking over a six-person stake in Shell Corporation held by Z, intermediaries to Global Corp. and MyFox, subsidiaries of LY Corp, this allowed Snow, which has been increasing its deficit, to be eligible for tax consolidation with Maver. As a result, Maver's stake in the stock operation increased from 84% to 90%, leading to an annual tax savings effect of over $10 billion starting from this year due to the deduction of Snow's deficit-related tax. In exchange for the transfer of sales shares from LY Corp, Sello transferred a portion of the ownership in Naver Z to LY Corp, and as a result, Naver Z, which had incurred a total loss of $85.3 billion in 2023, was deconsolidated from Naver as of March 1st. Next, let me discuss revenue by each business. In Q1, search platform revenue recorded $905.4 billion, up 6.3% year-on-year and down 2.5% year-on-year. Search ad revenue expanded its growth by 6.2% year-on-year, driven by improvements in power link exposure and the introduction of bidding-for-place ads. Display ads struggled due to the economic downturn last year, saw a turnaround with a 5.3% increase year-on-year, reversing the downward trend over the past five quarters. supported by the strong performance of performance-based ads, such as home feed ads, and the acquisition of new advertisers. We plan to continue seeking growth by introducing new products, along with acquiring new advertisers in the future. In 2024 Q1, the commerce revenue recorded $703.4 billion, up 16.1% year-on-year and 6.5% QQ, even with the disappearance of the base of AdWords Poshmark. Commission and sales revenues saw a significant increase of 28.9% YOY through mighty monetization of brand solution package and guaranteed delivery service in October last year. Cream's growth and the acquisition of soda also contributed. Excluding the effect of soda's integration, overall revenue increased by 10.4% YOY, while commission and sales revenues saw a growth of 17.5% YOY. Membership revenue grew by 24% YOY and 3.9% QOQ thanks to the continued increase in the number of subscribers and active users. Fees of revenue in Q1 recorded 353.9 BNW of 11.2% YOY and down 6% QOQ. Overall TPV in Q1 reached 16.7 trillion won of 24.8% YOY and 2.2% QO2. Among these, non-captic TPV led the overall growth, showing a 51.8% increase compared to the same period last year, driven by continued ecosystem-ecosystem. Ecosystem Expansion, and Offline QVV increased by 174% YOY, driven by the expansion of QR and MSD-based payments for the growth of Uber services. Content Revenue recorded $446.3 billion, up 8.5% YOY, but down to 4.3% QO2. Without the effects of Naver Z's QVVV, the revenue increased by 10.2% compared to the same fair last year. Global Webtoon's GMV in K1 recorded 468.7 billion won, up 9.1% worldwide, despite the continued depreciation of the Japanese yen, driven by the expansion of regional content in Japan and the influx effect of successful IP adaptation movements. Revenue in Q1 increased by 11.7% YOY backed by steady growth in GNV, expansion of original content production revenue in the IP business, and increased advertising in Japan. Excluding the impact of exchange rate fluctuations , GNV in Japan increased by 24% YOY, and the growth of users and paying users based in Japan is accelerating. Snow's Q1 revenue decreased by 28.7% YY and 1.5% QQ. However, when excluding the effect of the deconsolidation of DaverZ, revenue was up 4.8% YY but down 17.3% QQ. The number of camera app paying subscribers is on a steady rise by linking content using AI features. Cloud revenue in Q1,2034 recorded $170 billion, up 25.5% YY, but down 7% QQ. Among these, B2B revenue increased by 22% YY, driven by the reflection of EuroCloud's orders, revenue from the use of generative AI, such as HyperClovaX, and the expansion of paid IDs for lineworks. Other revenue grew by 187.5% YY, due to the baseline of stress-reflecting Clova device sales in the second quarter of 2023. The green list meant that we reached out with the Bank of Korea in December and dealt with HD Hyundai in March this year to introduce Hyper-Clova S, and we are promoting the introduction and utilization of generative AI in various fields. Next, we'll be selling special items. Development operations expenses remain roughly flat worldwide despite upward pressure from salary increases and consolidation of soda, thanks to more efficient allocation of personnel and productivity improvements, which help the curve of labor costs. Partner expense, however, increased 9.8% worldwide due to increased revenue-linked expenses. Infrastructure expenses dumped 28.1% worldwide due to new server asset acquisition for the scheduled ITC, which opened in the second half of last year, and temporary impacts from new service launches. Meanwhile, marketing expenses saw a slowdown in growth rate, driven by marketing expense optimization in the content segment. This year, infrastructure and marketing expenses will be managed with close attention to the release of new AI models that are going to help for AI products and the rapidly changing e-commerce and web tool markets. Next, let me discuss the P&L by business. First is the research platform and commerce segment. Despite the monetization of the Brian Solution package and guaranteed delivery service introduced last October, as well as the growth of premium and the expansion of Poshmire's operating profit, the segment saw a slight dip in profit margin compared to the previous quarter due to increased fixed costs, resulting from the opening of Sejo IDC and the consolidation of SOTA. In the case of Poshmark, the site turned EBITDA-positive in just one year since acquisition and has even reached an operating surplus in Q1. With both growth and profitability significantly improved, it is anticipated that this year we will be dedicated to further enhancing products and services. Since the product margins, rather profit margins, saw a slight improvement compared to the previous quarter driven by the expansion of payment, TPP, and revenue from platform businesses. When it comes to content, the growth in web content and ad revenue, the improvement in profitability driven by increased proportion of Japanese original work in GMB, as well as fundamental structural improvement, less-than-expansion in operating profit margins. Snow job profitability also improved through the de-consumption of neighbor Z and cost-efficiency measures on key business units. Cloud P&L and Q1 edged upward, though despite the off-peak season in the public sector, thanks to the full reduction of B2B, Eurocraft, and Gen AI usage fees in the financials, as well as the expansion of paid IDs and lineworks. Consolidated net profit and Q1 increase appeared through the same period last year, reaching $555.8 billion, driven by gains from the deconsolidation of subsidiaries such as Neighbors Inc. Next, I will discuss the cash flow and balance sheets. Pre-cash flow in Q1 recorded the $506.2 billion worth of the $123.6 billion Q2 due to the growth on adjusted EBITDA and a decrease in capex. In addition, borrowings totaled $3.3629.1, down $62.3 billion compared to the previous quarter. Short-term borrowings decreased by $450.7 billion, and as a result, the short-term borrowings ratio improved by 13 percentage points, from 22.7% in the previous quarter to 9.7%. The $800 million raised to acquire Poshmark was fully repaid in Q4 last year, and currently the borrowings are evenly distributed in Korean won, US dollars, and Japanese yen. The average borrowing rate for Nibra is at around 1.7%. With the approval of the shareholders in March this year, cash dividends of approximately 1951, equivalent to 20% of the average consolidated year for the past two years, was laid out on April 17. In addition, plans are in place to retire 1% of existing treasury shares within this year. The Board of Directors will resolve on the matter at the appropriate time, and we plan to share the details once they are finalized. This ends the Q1 Financial Performance Update, so we will now take your questions. Your first question comes from the line of Eric Chabrit, Kourzman Sachs. Your line is open.

Thank you for your explanation. I have two questions. I could see that the display advertisement has been improved with YOY. I think it's an effect that's been achieved through the revision of the main page. This is not a temporary phenomenon, but in order to grow more structurally and continuously, which part do you remember best? And the 10% engagement increase you mentioned earlier, I'm curious if this is an update for us in the future. Also, I'm wondering if the recovery of the advertising economy is not being observed yet. The second question is that commerce GNB is a product standard, and the growth rate is slightly lower than that of competitors. Is this a temporary phenomenon in terms of the difference in GNB mix? Thank you for taking my question.

My first question relates to, first of all, if you look at your advertisement business, we see that the momentum for the display ads have been coming up on a year-over-year basis. And it looks like it's mainly driven by some of the reshuffling that you've done, especially revamping of your main page. Should we consider this as a temporary impact or should we look forward to a more sustainable trend going forward? And will we be able to get additional updates on, for instance, the 10% engagement improvements that you shared with us previously? And also, are you seeing any specific signs of recovery in the advertisement market? Moving on to my second question, it seems that if you look at your commerce GMB based upon the merchandise basis, compared to your competitors, you seem to be moving slower. Is that because of any structural reasons or is it attributable some of the temporary impact from the mix of the GMB? If you think that this is a structural issue, what are some of the efforts that you are currently planning to narrow that gap with your peers?