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?

Yes, first of all, I will answer the first question. The display advertisement is correct. Because of the increase in engagement in the main feed and the contribution to the effective advertisement, it has grown by 5%. However, I don't think this is a temporary phenomenon, and in the future, we will make an effort to improve the efficiency of the key products this year and to We expect to continue to maintain a steady growth rate that will increase in the key display room rather than last year. The overall environment of the advertising market Well, I think it's a little early. I think it's a little early to talk about this, but there was a rumor that the GDT Rally Pro in the first quarter has also improved in the domestic market, but I think it will take some time to get to the advertisement. However, the advertisement we are looking at on Naver shows a steady trend from the second quarter to April, so I expect that this year's advertisement will be a little better than last year. I'm looking forward to it.

This is the CFO responding to your first question. Yes, you are correct. If you look at our display ad, we've been able to drive up the engagement thanks to the revamping of the main feed, and we believe that that had played an important contribution in bringing up that growth of display ad to around 5%, and also that's been impacted by the performance-based ads as well. We do not believe that this is a temporary impact. We have seen a sustained level of CTR improvement and efficiency improvements regarding our advertising business, and we will continue to expand on the surfacing and the advertisement impression as we go forward. So we expect that for the display ad this year compared to the previous year, we can look forward to a more sustained level of growth. Now, if we then look at the advertisement market, it is too early to give you any affirmed positioning on how this market is going to play out into the future. However, if you look at the GDP figures that's been announced for the first quarter, we see that there are signs of improvement in the domestic economy. But of course, there will be some time lag for that to have an impact on the advertisement market. Having said that, from Naver's perspective and from our advertisement business, If you look at Q1 and the past quarters as we enter into Q2, I can tell you that the trajectory overall is quite positive, and I believe that we will be able to expect more of a robust growth for this year compared to the previous year.

Yes, I will answer the second question. First of all, I think we need to see the growth of the current commerce market and the economy. I think it is true that the market itself is deteriorating overall after the rapid growth of our domestic online commerce transactions during the pandemic. However, in the case of current competitors, we are judging that growth rates are bringing in growth rates in offline or something like this. Considering that most of the commerce platforms are stopping their growth or showing a lot of growth, Naver is based on various commerce portfolios, such as products and services, long-tail and short-tail, which we have a lot, and we are judging that it is recording a fairly solid platform growth. In particular, in the case of long-tail products with a strong Naver and a strong Naver, which seem to be sensitive to some boundaries, I expect that the recovery of the economy or the recovery of consumer sentiment will come to life. In particular, since Naver has a personality as a platform that connects all online services, such as advertising, marketing, shopping, and place payment, it is difficult to judge the growth only by one indicator of trading. On the other hand, other commerce competitors can be a new opportunity for us in advertising, and pay competitors can become a partner that can cross the on-off line by combining the advantages of each of us. Please keep in mind that it can have a positive impact on the entire ecosystem of Naver. Also, in terms of logistics and delivery, which we think are relatively weak, I think we can supplement our strengths and explain them to the market.

This is the CEO responding to your second question regarding the commerce market. Yes, I think there is a need for us to separate the growth that we see from the commerce market and the growth rate that we see from our peers. I do accept that during the pandemic, we've seen a very steep growth in our online commerce business. And after the end of the pandemic, yes, we are seeing that slowdown in the market growth. If you look at our competitors and our peers in the market, we see that their growth is mainly driven by the grocery segment. And we've seen some moderation in the growth of the commerce business in the overall market. But if you look at Naver and the particular merchandise, the products and services that we really offer, as well as some of the long tail aspects, we can tell you that our platform-based commerce growth has been quite solid. Now, you also need to take into consideration that in terms of the types of long-tail products that Naver has displayed its strength, I believe that once there is a rebound in the overall domestic economy, and once there is improvement in the consumption sentiment, I believe that we will be able to see a rebound. And also, if you consider that Naver's performance should not just be judged, specifically just based on the GMV. You need to consider the fact that Naver is a platform that connects the advertisement, the marketing, the shopping, the place and the payment. All of these aspects are connected in the online platform. So it's very difficult to make an across-the-board judgment by just looking at the GMV feature. And also, for instance, what I mean by that is that we could also consider a new opportunity to emerge in the area of advertisement, if we look at that from a commerce competitor's perspective, and also we can bring and play with the strength of the pay aspect, the payment aspect. So we can become a company that provides opportunity both online and offline, and we can be a partner of choice. to the participants of the overall ecosystem. And so there is also that very positive aspect that we can derive from, based on the fact that Neva is a platform-based player. And also with regards to some of the shortcomings that we have regarding logistics and delivery, we will continue to build upon our capabilities or supplement our capabilities so that we will be more equipped to respond to the market need.

Our next question comes from the line of Park Se-yeon with Morgan Ferry. Your line is open.

Please ask your question. In the case of Big Tech, which is a huge investment in terms of investment, we are now doing investments in tens of trillion units, not in trillion units, but in this situation, in the case of labor, we have to continue to take this hyper-probe model as a current investment trend, or when we consider it in the medium term, I would like you to think about whether you are considering such a system to purchase an external model if you need it, and I would like you to share your thoughts on what kind of products or services you are looking forward to in the future.

Thank you. I have a question on your AI business. If you look at the global trend this year, we see immense amounts of investment that is being put in by those so-called global big techs in the two last tens of trillions. Now, I would like to understand as to Naver's approach to your AI business, would you continuously stick to your hyper-cova model or would you also consider a multi-model approach? considering other third-party AI algorithms and models as well from a mid- to long-term perspective. And specifically for year 2024, where we want to assess your AI-related performance, what are some of the products and services that we in the market should focus on?

I think there are a lot of people who think wrongly that AI is proportional to the size of the capex. In the case of companies where a large number of overseas big tech companies invest, the demand for equipment purchase for the sale of the production equipment is large, and if you look at the performance of the LLM model called AI, if you look at the performance data of the models that are competing all over the world, The performance or efficiency is not necessarily proportional to the completed capex amount. In particular, if you look at the recent models that are entering the top 5, there are many cases where the capex version is trained much less than Naver. So, in the future, if you look at the open-source phenomenon of LAMA3, it will be possible to understand that this model is being commoditized.

Now, I think there is misunderstanding in that people expect the size of the CapEx actually is going to be proportionate to the amount of capabilities one can derive out of AI. When you talk about the tens of trillion that is being invested by big tech, I think that is referring to the immense amount of money that is required to purchase computational power, computational devices and equipment. If you just look at the large language models and if you compare their performance bases, basically, you know, the amount of investment that is required in terms of the capex is not in proportion to the level of performance or the efficiency one derives out of those LLM models. Especially if you compare the top five models, they are very lightweight, meaning that the amount of investment that has been put in for training these models are quite light, and even lower than the amount that Naver had spent as a CapEx. And if you also look at the recent trend of how Lama 3 has become now an open source, we see that in terms of these language models, these universal models versus the amount of CapEx required for the computational hardware and the devices, I can tell you that these types of models are becoming more commoditized as we see.

So, from our perspective, the model market will gradually become a commodity type. Rather, the model market is characterized by verticals, such as the SaaS market, which is the Haru market. We expect it to continue as a competition for different models. Here, rather than needing a large amount of computing equipment, it is important to differentiate between the specialized model, the customized vertical, the customized use case, and the language, as the strategy that Naver is promoting right now. In our case, The investment trend of capex last year and this year has not changed significantly. Of course, we have more than 7 billion won in capex per year. Among them, the cost of buying and purchasing GPU demand has increased more than last year. Last year, we made an additional 1.5 billion won investment, and this year, an additional 2.5 billion won investment is expected. So, looking at this from the CAPEX perspective, especially for these universal models, as I've mentioned, it's being commoditized.

And I believe that there's going to be more focus put on the specialized verticals such as SAS and other more differentiated models vis-a-vis what is being provided by the competitors. So rather than immense amounts of investment that is required for computational power, just as is the case with Naver's strategy, there will be more focus, I believe, going forward on specializations that better caters to the needs of the clients in terms of their language models as well as the use cases. So we will see more specialization and scaling up as we go forward in line with those special protocols. For Naiva, the total aggregate amount of capex is more or less going to stay the same as we go forward, also as we've seen for the past two years. Our investment into capex and to the equipment was above about $700 billion. which has been used, and we've been spending more to purchase more of the GPU chips. Previous year, we spent a creative of $150 billion. This year, there will be additional spending of $250 billion for the purchase of the GPUs. Having said that, our aggregate amount of CapEx is going to stay flat as we go forward, but we will focus more on improving the performance of these models and to scale them up.

In the case of this year, we will continue to focus on providing customer-oriented and paid services such as NeuroCloud and Clover Studio, which we have been using Hyper Clover X since last year, but this year, in particular, we will focus on the part that we want to focus on. We are reflecting on the technology related to AI in our production type in the entire Naver service such as Naver service and webtoon. In particular, if this part is well focused, I expect that it will have the effect of efficiency and delivery time increase that were difficult to see in the existing advertising part.

So as we've done last year, we will continue to leverage our hybrid ClovaX to expand that into the application, expand it and apply it to our overall ecosystem. We will, yes, focus on neural Clova as well as Clova Studios, but also at the same time, we will bring and incorporate generative AI features across all of the Naver services as well as the Naver Webtoon as well. And once that deployment is well completed, I believe that we will also be able to drive efficiency improvement and better time spent regarding our advertisement business as well.

Our next question comes from the line of Odongwan with Samsung Securities. Your line is open. Please ask your question.

Thank you for your attention. I'm curious about the growth rate of G&B in the G&B market, which is the same as G&B's growth rate in the POS market. Second, it is a scale that is still strong in the POS membership, but I'm curious about how much the growth rate of EVLE will show through this new version. We are starting to deliver goods for the first time as an event. Thank you for taking my question.

My first question relates to your GMV growth for your commerce business, setting aside Poshmark for domestic. You haven't disclosed that number. Would you be able to? And also, you're very much... your membership program. I would like to know, because of the promotion that you recently undertook, what is going to be the increase in the marketing spend that we are going to see reflected in the second quarter number? And also, just like Coupang is doing, right now you are providing a free of charge delivery for guaranteed delivery. I would like to know, after this event, would you make this a more regular thing?

Considering the relative amount, there is no significant difference in the overall number of domestic e-commerce transactions except for POS MARK. Promotion based on membership enhancement is right. It is planned to continue in the second quarter rather than the last quarter, but in the second quarter, we are experimenting with many programs rather than maintaining the marketing cost, and this is a long-term increase in the trend. I think it will be difficult to see. Lastly, the free delivery of the membership is currently in the experimental stage. It seems that it is still a bit early to judge whether it will become a regular membership or not.

is even if we look at that relative percentage of growth, even after taking aside Poshmark, the domestic commerce year growth is more or less going to be quite similar to that overall level that we have previously shared. And yes, for marketing spend in Q2, we are planning to spend a little bit more, but that's not necessarily a significant increase in terms of the absolute amount of marketing spend. It's just that we are We are testing many different things, experimenting different things. So I cannot say that this is going to become such a long-term or secular trend when it comes to our marketing spend. In terms of membership as well as free delivery, yes, this is also some of the features that we are testing as we speak. So it's too early to tell you whether this type of a scheme is going to become something regular as we go forward.

다음으로 질문하실 분은 Macaulay 증권의 이동륜님이십니다. Our next question comes from the line of 이동륜 with Macaulay Securities. Your line is open. Please ask your question.

Thank you for your time. Recently, there have been a lot of news about the rise and fall of the stock market in the media, and there is a lot of news about the rise and fall of the stock market in the media, and there is a lot of news about the rise and fall of the stock market in the media, and there is a lot of news about the rise and fall of the stock market in the media, and there is a lot of news about the rise and fall of the stock market in the media, and there is a lot of news about the rise and fall of the stock market in the media, and there is a lot of news about the rise and fall of the stock market in the media, and there is a lot of news about the rise and fall of the stock market in the media, and there is a lot of news about the rise and fall of the stock market in the media, and there is a lot of news about the rise and fall of the stock market in the media, and there is a lot of news about the rise and fall of the stock market

Thank you for taking my question. Recently, we've seen a lot of press articles on the possibility of sales of equity holdings that you have in Line Yahoo, LH Corporation. If that plan or if that speculation actually is affected, there will be significant amount of cash that is going to flow into the company. So regardless of whether that happens or not, just would like to get some color as to what the company's overall M&A approach is. And after the acquisition of Poshmark, we have been able to unlock the growth potential. So I'm wondering whether if you're thinking of additional M&A opportunities or you're focused on making that additional acquisition in the United States in the C2C e-commerce domain.

I'm sure many of you are curious about the Japan-Chosun administrative map. The administrative map itself requires more capital control, but it is not a matter of deciding whether to follow it or not, but it is defined as a matter to be decided based on medium-term business strategy and we are conducting internal analysis. Our position has not been settled yet, so I will tell you again when it is settled. In this regard, we are cooperating closely with our government authorities, including the Ministry of Foreign Affairs. Thank you from the government's point of view because you are helping us a lot.

I'm sure a lot of you will have some questions relating to this administrative guidance that's been issued by the Japanese Ministry of Internal Affairs and Communications. The administrative guidance on calling for a sell-down of the equity holdings that is considered to be something that was quite extraordinary. Basically, but regardless of this aspect, from its Not about whether we comply with that guidance or not, I think what's important is that we make this decision and review this aspect from a mid to long-term business plan that the company has. At this point, we have not yet finalized the position of the company, but once we reach that final position, we will definitely come back to the market and communicate that message with you. We're in the process of talking very closely with the government entities as well as MSIT as well, Ministry of Science and ICT, and I take this opportunity to also extend my gratitude for the dialogue that we've engaged with the government entity.

I will answer the question about the M&A plan. We are always thinking about M&A. In the case of the U.S. C2C, we are not thinking of additional M&A. Our strategy for the U.S. C2C is that we have adopted the POSMARK, which was the largest company in terms of profitability and growth, with the highest brand value and the most trusted customer. Therefore, for the time being, especially this year,

Regarding your question about another M&A for the US-based C2C player, When it comes to merger and acquisition, yes, we are always thinking about what potentials may emerge, but we are at this point not thinking of making any additional US-based C2C company acquisition. We believe that in line with our strategy and our decision to acquire Poshmark had been right on, considering the fact that Poshmark, considering the fact that we were looking for a company that had growth potential, that had high brand value, that had the trust from its consumers and also potential for improvement in its profitability and the growth. So for this year, we will focus on improving and enhancing the products and services that is offered by Pulse Smart. That will be the key priority for us when it comes to CQC.

Now, we will take the last question. The last question is We will now take our last question from the line of Kim Jin-gu with Xium Investment, Xium Securities.

Your line is now open. Please let me know, and if you have any additional questions or requests for membership requests, please feel free to ask. The second question is, as I said before, it is possible to provide a one-minute permit for the second-hand goods, and even if you take over the A Holdings company, you will be able to purchase the second-hand goods Thank you for taking my question.

My first question is, recently I would like to know as to what impact your commerce user-related promotion would have on marketing spend going forward, and also what contribution would that make to creative growth for your GNVs and your membership business? Second question, it's sort of a follow-up from the previous question. Setting aside A holdings, I would just like to understand as to, because of the recent development, wondering whether this will have any implication on your future cooperation with SoftBank or LA Corporation, and if so, what will be that direction of change?

As I said earlier, the promotion policy is in the process of various experiments, and this quarter is a plan to support promotion a little more. I'll have to see how this will affect GMB or the increase in the number of members so far. The clear thing is that the purpose of our promotion and the purpose of reflecting various benefits such as promotion of membership Regarding the promotion policies, I've mentioned also before that we are at this point testing and experimenting with many different things.

So we will definitely be doing more this quarter, but we would have to wait and see as to what impact that will have on our GMB and the increase in the number of our member base. Now, the reason why we employ such promotion and provide benefits is because we want to be able to drive up the ticket price per member as well as the number of purchases that the members engage in. So we can't just simply say that the promotion policy is geared towards or is just increasing the number of members.

Regarding the current situation in Japan, we were in the position of the main and technical partners for Aholdings, especially for Line Yahoo. In particular, a close business partnership was not yet in place. There is no confirmed direction yet, but the infrastructure that we provided as a technical partner was separated from the current administrative map and built on its own.

Regarding Japan and the relationship with the holding and LH Corporation line Yahoo, basically the relationship was that of a shareholder relationship and technical partner, technology partner. We haven't yet reached the phase where there is a very close business-related cooperation. In terms of the administrative guidance, because there has been a notice on the provision of infrastructure, separating and also providing on a standalone basis. So if that is affected, that may have impact on our infrastructure revenue. But aside from that, there is not much that I can say at this point.

We've answered all the questions that was waiting in the queue.

Once again, thank you very much for joining us. This brings us to the end of Naver's Q1 2024. Any conference call, we look forward to your continued support. Thank you.