Naver Corp Ord

My name is Choe Myung Hwan from Naver. We will now begin Naver's 2025 Q1 earnings conference call. For the benefit of our investors joining from home and abroad, we will provide simultaneous interpretation. On this call, we are joined by CEO Siwon Choi and the newly appointed CFO Heechul Kim, and they will walk you through Naver's business highlights and strategies and financial results, after which we will entertain your questions. Please note that the earnings results are KIFRS-based, are 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 the business highlights. Good morning. I'm Suyeon Choi, the CEO of KIFRS. In 2025, despite an uncertain environment, Naver achieved solid results by strengthening its core business of competitiveness and advancing its platforms. In the changing era of AI, Naver has demonstrated its unique platform competitiveness with exclusive content and data, not only for search but also for content discovery, and even extending to services like shopping and local places, creating an ecosystem that AI cannot replace. Furthermore, through the launch of AI Briefing, Neighbor is progressively adapting to changing user patterns. Recently, through advanced personalization, Neighbor has further strengthened its business ties, especially in shopping and local places. This is evident in the YOY growth of 11.9% in search platform and YOY growth of 8.2% in search advertising recorded in Q1. In the advertising segment, neighborhood ads began to evolve as we enabled more efficient ad delivery within the advertisers' budgets through the phased rollout of the ad tech platform named AdBoost, which began testing in January. Through the optimization of ad placements, particularly in the mobile home feed and main page, we expanded the visibility of shopping search ads provided diverse advertising experiences, and saw significant growth in commerce advertising as a result. To further enhance content discovery, we plan to revamp the Neighbor app and our main search engine within this year, focusing on advanced content recommendations and personalized search experiences. These progressive advancements in service and ed technologies will help blur the lines between search, display, and commerce advertising across and beyond the platform, driving overall ad efficiency. In commerce, following the launch of the NeighborPlus Store's standalone app in March, we have observed changes in user patterns and growth opportunities. Moving forward, we will introduce differentiated UX and services exclusive to the standalone app, beginning with features designed to enhance retention in the form of a commerce specialized AI agent, while continuing to expand membership-exclusive benefits to further invigorate neighbors' shopping ecosystem. Moving on to our segment results, starting with search platform. Search platform recorded steady growth in Q1, driven by continued enhancements in platform competitiveness and advertising efficiency. To strengthen the competitiveness of neighbors' search platform, we are leveraging our company-wide analytics platform to assess the quality of search results by topic, and identify areas for improvement, thereby enhancing overall search quality. In parallel, we plan to further improve the quality of search and related services by securing additional reliable public data and information to reinforce our data assets, an essential component of search competitiveness. At the same time, discovery features are being further refined to increase user time spent on the platform. In Q1, we enhanced our personalized recommendation algorithms, allowing content to better reflect the individual interests of users. Additionally, we expanded the feed space within vertical spaces like cafes, creating more opportunities to deliver tailored content. Moving forward, we will introduce dedicated feeds for specific topics, such as fashion, beauty, lifestyle, food, and travel restaurants, while enhancing the accessibility and visibility of recommended content. We are also preparing a revamp of the Neighbor app in our main search engine to ensure content is consumed more organically. Furthermore, by actively utilizing AI in the layout and structure of the Neighbor app, we aim to personalize user navigation and lock in users to spend more time within the Neighbor ecosystem. Furthermore, we plan to apply personalization to our main search engine as well. Unlike the past where the same results were shown to all users, search results and its UI UX will now be tailored to each individual's context by leveraging customization technology and unified data. We expect that this revamp, along with efforts to improve search quality and secure data, will provide users with an optimal search experience. Naver is also focusing on UGC production to ensure that high-quality content tailored to the interests of users is generated across various services and is exposed based on accurate targeting. Users ranging from teens to their 30s who feel fatigued by fast-consumed content are migrating to blogs where they consistently create unique posts with images and videos in their personal space. Meanwhile, CLIP continues to attract high-quality creators, providing meaningful synergy with local places and shopping services. In the first half of this year, the number of creators active under the CLIP Creator Program has grown more than two-fold compared to the end of last year, with rapid content expansion across diverse categories, including local places, entertainment, sports, and fashion and beauty. This has led to healthy content consumption, reflected in increased daily good views and time spent. Since its launch, CLIP's average daily time spent has increased by 1.8 times, with expanded creator rewards and growing synergy with other neighbor services. Some top-tier creators are now earning up to $20 million per month. Such UGC creation linked with neighbor cyber services is driving a virtual cycle that strengthens platform competitiveness. Content produced on Clip is being showcased through Clip reviews on Neighbor Place, building a collection of valuable video assets. In addition, Shopping Connect, which started testing in April, effectively links brands, smart store sellers, and various creators on the Neighbor app and is set to evolve into a powerful marketing tool that will also drive branding effects within Neighbor Plus Store. These accumulated, unique, and diverse neighborhood content assets will be leveraged to enhance differentiated AI search and commerce experiences and will serve as the foundation for developing our own AI agent. Next, let me also provide a brief update on the progress of on-service AI. To meet the growing demand for AI-driven search, we released AI Briefing in March, starting with 1% of factual queries to provide users with concise summaries of the information they seek. Although the service has been live for only a short period, we've seen positive indicators such as higher CTR and user time spent with AI Briefing results compared to pre-implementation. Going forward, we plan to expand the current coverage and enhance service quality through model improvements and usability analysis. Some features of AdBoost, our AI-based platform designed to automate ad campaign execution and optimize budgets for advertisers, have also been replied. Currently, keyword generation and automated bidding features are in use. And by year end, we plan to launch additional features such as creative generation and automated targeting to enhance ad performance and optimize budget utilization. To elaborate further on our Q1 advertising performance, within search advertising, we continued efforts to improve our product while also expanding the application of expanded search or extended search, which automatically matches ads to search queries that are closely related to content on the advertiser's site and exposes those ads accordingly. In display advertising, we drove revenue growth by delivering high-performing ads and expanded feed inventory through more advanced targeting capabilities. In addition, to meet the growing demand for advertisers seeking broader search or broader reach, we continued to expand beyond the neighbor platform. As a result, a variety of neighbors' ad products are now being served across multiple external platforms and websites. As mentioned earlier in Q1, the optimization of ad placements led to commerce ads being served within existing display inventory, which resulted in a different growth distribution than in the past. As inventory optimization and automation for ad delivery and budget optimization design for advertisers advance, we expect the lines between search, display, and commerce ads to blur even further. Accordingly, we plan to communicate in total neighborhood platform advertising metrics, which will encompass search, display commerce, financial, and webtoon ads. For reference, in Q1, the total neighborhood platform ad revenue achieved a steady growth of 9.6% worldwide despite challenging conditions, demonstrating the resilience of the neighborhood platform. Next, I will provide an update on our commerce business. In Q1, the overall shopping market environment was challenging due to factors such as weakened consumer sentiment driven by political and social issues, persistent high inflation and interest rates stemming from uncertainties in the U.S., and fewer business days compared to the previous year due to the designation of temporary public holidays. Despite such challenging environment, we reinforced platform competitiveness with the launch of Neighbor Plus store and achieved a solid 10.1% worldwide growth in on-platform GNV, driven by strategic efforts in delivery and membership. The NeighborPlus store app, launched in March, enhanced shopping value by strengthening personalized features through the Smart Store database, focusing on exploration and discovery. It also expanded benefits for membership users, significantly increasing member activity. The outcome of these efforts was evident in the positive trends seen in customer activity and user behavior metrics. In terms of customer activity, the app showed higher levels than the web in metrics, such as purchase frequency, purchase amount, conversion rate, and the average GNV. Notably, the activity of membership users within the app was approximately 26 percentage points higher compared to the web. Similarly, in terms of user behavior, we observed a significant increase in GNV in the discovery domains within the app, such as the shopping home, verticals, and curated events, indicating changes in user patterns and growth potential as intended. The launch of the Neighbor Plus Store standalone app is part of a two-track strategy to enhance user accessibility and convenience. It aims to retain general users who access through the Neighbor app and mobile web while expanding the overall user acquisition channel by adding the app as a new channel to provide a more sophisticated shopping experience. The app will also be positioned to gradually attract users according to their needs, focusing especially on loyal customers who visit frequently and show higher purchase conversion rates. Going forward, we plan to progressively enhance differentiated UX and services exclusive to the app, including features like the AI Shopping Guide to improve retention. At the same time, we will continue to expand exclusive benefits for membership users to further energize the Smart Store ecosystem. In terms of delivery, we rebranded the Guaranteed Delivery Service as End Delivery in line with the EP Launch, while also enhancing the service by providing more detailed delivery dates as well as offering free shipping and returns benefits for membership users. We also expanded Same Day and Sunday delivery, reducing lead times and increasing user satisfaction. Also, end delivery coverage grew by 90% compared to the same period last year. Furthermore, To enhance our competitiveness in the fresh fruit sector, where fast delivery is crucial, we plan to launch a service in partnership with Curlie in the second half of the year, expanding our selection of high-quality products and improving price competitiveness. With this partnership, we expect to accelerate customer acquisition and purchase frequency in the rapidly growing fresh fruit category, which holds a significant share of the commerce market, while also strengthening the overall competitiveness of our commerce platform. The Plus membership is strengthening the ecosystem by expanding benefits both within and outside the Neighbor platform. Following the Netflix partnership, the trend of increased daily new sign-ups and higher shopping expenditure compared to pre-membership has continued. Active and paying user growth has also accelerated, further contributing to the vitality of Neighbor's commerce ecosystem. The core value of Plus Membership lies in offering a differentiated, enjoyable experience unique to a neighbor beyond simple discounts and rewards. We will continue to expand user benefits and evolve the service to deliver a consistent delight in users' daily lives. Lastly, let me highlight the remarkable growth achieved in our commerce advertising business. With the ad launch, we expanded our content inventory and optimized ad placements across the board. by enhancing personalization features to help users discover more relevant products. We also improved ad visibility within integrated search results and enhanced the recommendation ads in non-search areas to boost efficiency. AI-powered creative optimization and expanded matching technology were applied to help advertisers more effectively expose their DVs. These combined efforts generated strong synergy, driving commerce ad revenue to an all-time high and marking robust growth. Next is an update on our fintech business. In Q1, neighbor pays TPV reached 19.6 trillion won, representing a 17.4% increase YOY and 1.4% increase QOQ. Of this, non-captive payments grew 24% YOY, surpassing 10 trillion won, driven by enhanced payment usage and an expanded network of merchants. This now accounts for 52% of total NeighborPay payments, highlighting the continued expansion of our payment ecosystem. For our platform business, NeighborPay's loan comparison service is now available on the KBank app through our partnership with KBank. This enables KBank users to easily compare loan products from 70 financial institutions already partnered with NeighborPay and we expect this to attract a broader range of users to the NeighborPay platform. The launch of our securities web trading system has increased convenience, allowing users to access investment information and trade stocks through their securities accounts directly within the NeighborPay app. We will continue our efforts to strengthen competitiveness across various financial services. Now moving on to Webtoon. In Q1, Web2.0 revenue was $422.7 billion, up 7.1% YOY, but down 1.2% QOQ. For reference, Web2.0 Entertainment will release its earnings report on May 13th, the in-U.S. time. Please refer to Web2.0 Entertainment's earnings call for more detailed information. Finally, I would like to provide an update on the performance of the Enterprise Division. Starting from this quarter, we plan to rename the cloud division to the enterprise division, taking into account the characteristics of the business segment. Please note that the detailed composition of the division remains the same as before. The B2B business in the enterprise division is steadily growing, supported by LineWorks' ongoing efforts to acquire paid users. Through campaigns targeting the conversion of free users to paid ones, the number of paid LineWorks IDs has consistently increased by over 10% for four consecutive quarters, ensuring stable growth. The number of paid clients is also steadily increasing, laying the foundation for future customer acquisition. Moreover, by utilizing the AI capabilities gained through the integration of Lion AI in 2023, we plan to launch various services in conjunction with LionWorks. In Q1, we launched Roger, a real-time voice communication service. In April, we also introduced the paid version of AI Note, which has been well-received by a variety of corporate clients. Looking ahead, Lineworks plans to expand its product offerings beyond messaging, with a focus on evolving into an AI-powered platform. In the B2B AI sector, we successfully secured contracts for NeuroCloud, powered by HyperClovaX. including a contract with the Bank of Korea in the first quarter following our successful partnership with KHMP at the end of last year. This marks an important step toward expanding our specialized AI services for the financial sector. Through this contract, we plan to implement AI power solutions to enhance the productivity of employees at the Bank of Korea, including basic functions such as document search, summarization, as well as developing specialized tools for research and analysis of various economic issues. We expect revenue to start generating from both our KHMP and BOK contracts beginning in Q2. As businesses continue to advance AI technology and its applications, the demand for GPU as a service is expected to grow, allowing companies to utilize GPUs within cloud environments without the need to establish a separate infrastructure. Given NeighborCloud's experience in building Korea's largest data center, supercomputer infrastructure, and expertise in operating LLMs and AI services, We expect to offer highly competitive services. In Q2, we will secure the first case of GPU as a service and obtain a meaningful reference. Moving forward, we plan to build more references not only in Korea but also internationally. Although the overall advertising and commerce market is expected to remain weak due to recent economic downturns, Nibiru will focus on enhancing its AI-powered service platform and business capabilities, working with Alvarez stakeholders to outperform market growth. Next, CFO Heechul Kim will walk you through Q1 financial results. Good morning. I'm the new CFO, Heechul Kim. This earnings call is my first opportunity to address investors and analysts. In the future, I will work to ensure more opportunities to connect with you beyond these calls. I kindly ask for your continued support and encouragement for NABIR. Now, let me present the financial results for the first quarter. NABIR's Q1 revenue totaled $2.7868 trillion won, up 10.3% worldwide, driven by strong double-digit growth in core businesses such as Search Platform, Commerce, and FinTech, but down 3.4% from the previous quarter. Despite the challenging macroeconomic environment with a weakened economic outlook and consumer sentiment, along with uncertainty in the advertising and commerce markets, labor has continued to drive strong growth in its core competitiveness by strengthening its service offerings and exploring diverse monetization strategies. Costs were carefully executed with a focus on each business unit's strategy and the company's need to long-term direction. As a result, operating profit increased by 15% to YY, but decreased by 6.8% QOQ, reaching 505.3 billion won. The operating profit margin was 18.1%, up 0.7 percentage points, YOY. Adjusted EBITDA, which excludes the volatility of stock-based compensation expenses and depreciation, increased by 20.7% YOY and decreased by 6% QOQ, reaching 701 billion won. Adjusted EBITDA margin was 25.2% up 2.2 percentage points YOY. Next, I will explain the revenue by business segment. In Q1, the search platform revenue increased by 11.9% YOY but decreased by 4.9% QQ, totaling $1.0127 trillion due to the seasonal off-peak period. Search ad revenue totaled 753.7 billion won, up 8.2% to YY, but down 1.9% to OQ, driven by the expansion of expanded search, improvements to place ads, and the added effect of expanding to external media. Display ads experienced a slight slowdown in YY growth due to the downturn in the advertising market, the impact of seasonality, and the exposure of commerce ads within the feed pages due to placement optimization. However, thanks to efforts such as expanding new feed placements, increasing high-efficiency feed coverage, and strengthening targeting, revenue recorded $217.2 billion, up 7.3% YY and down 13.8% QOQ. As mentioned earlier, the demand from advertisers for the most efficient ad placements, regardless of page or product lineup, is increasing. The boundaries between the various ad products displayed across neighbor ad placements are gradually being blurred. Accordingly, starting from the Q2 earnings column, the revenue classification within the search platform will be adjusted. Going forward, please note that communication will focus on the total advertising revenue growth of neighbors' platforms, as explained earlier. Commerce revenue recorded $787.9 billion, up 12% YOY and 1.6% QOQ. Commerce advertising saw an accelerated growth rate of 16.4% YOY and increased by 0.2% QOQ, contributing to overall revenue growth. With the optimization of ad placements and the advancement of recommendation ads, we applied AI-based creative optimization and expanded matching technology to help advertisers more effectively expose their databases. Going forward, we expect ads to be more efficiently displayed on shopping placements with high growth potential, contributing to growth. Despite the deconsolidation of VMEWS, our commission and sales revenue was up 8.6% YOY and 2.5% QOQ backed by GMB growth from smart stores, including brand stores and services, greater adoption of brand solution packages, and enhanced delivery competitiveness. Adjusting for the deconsolidation of MUSE in Q3 last year, revenue rose 12.3% YOY. Membership revenue rose 15.4% YOY and 3.5% QOQ driven by sustained growth in average daily new sign-ups following the partnership with Netflix in November. FinTech revenue grew by 11% YYY, but declined 2% QOQ, totaling 392.7 billion won. TPV reached 19.6 trillion won, up 17.4% YYY and 1.4% QOQ, backed by increased payments on SmartStore and the continued expansion of Labor's third-party ecosystem. Non-captive payments now account for 52% and is leading the growth. Content revenue increased by 2.9% YOY but decreased by 1.7% QOQ, totaling $459.3 billion. Considering the deconsolidation of Neighbor Z in March 2024, this represents a 6.7% increase YOY. In Q1, webtoon revenue increased by 7.1% YOY based on neighbors' consolidated results in Korean 1, but decreased by 1.2% QOQ. For more details, please refer to the Webtoon Entertainment Earnings Call scheduled for May 13 in U.S. local time. Webtoon's entertainment earnings and also Naver's results may vary because of the different accounting regulations. Snow's revenue dropped by 33.9% YOY and 8.9% QOQ due to the continued deconsolidation effect of Naver's ZEE. However, excluding this effect, the increase in paid subscribers for the camera app driven by AI content integration resulted in an 18.4% increase YY. Enterprise revenue totaled $134.2 billion, up 14.7% YY, but down 24.4% QAQ. B2B revenue increased by 7.5% YY driven by steady growth of fine works in Japan and revenue recognition from NeuroCloud. Other revenue grew by 156.2% worldwide, supported by revenue recognition from the Saudi Ministry of Housing's Digital Twin project. For reference, excluding the one-time revenue impact of approximately $30 billion won from the Lai Nyahu settlement, recognized in Q4 last year, total enterprise revenue decreased by 8.2% at QQ. Next, let me walk you through the breakdown of expenses. Development and operation expenses increased by 8.1% YOY due to essential hiring to support growth in areas such as shopping, but remained a stable QOQ, declining slightly by 0.2% due to a reduction in stock-based compensation. Partner expenses rose 6.7% YOY but declined 4.7% QOQ due to lower revenue-linked commissions and a base effect from the recognition of costs related to the end-of-service contract with Line Yahoo in Q4. Infrastructure expenses increased by 11.4% YOY and 2.3% QOQ, driven by higher depreciation costs from the acquisition of new server assets, including GPUs. Marketing expenses rose by 17.1% YOY due to strategic commerce promotions, aligned with the launch of the separate Plus Store app, as well as increased promotions in the FinTech and Web2 segments. However, they declined by 3.9% QOQ due to a base effect from year-end promotions. Looking ahead, we plan to drive sustained growth in core businesses such as search, commerce, and content by executing strategic and proactive marketing as needed, while closely evaluating its effectiveness through internal validation. Next, let me discuss the P&L by business. First, in the integrated search platform and commerce segment, margin improved worldwide despite increased hiring in the shopping business and expanded promotions. This was driven by steady ad growth and a favorable shift in the revenue mix, led by strong growth in high margin commerce ad sales. The FinTech segment saw improved profitability worldwide, driven by continued growth in payment, revenue, and the execution of strategic marketing. While the losses in the content and enterprise segments are slightly widening the YOY, we are committed to identifying new business opportunities, enhancing competitiveness, and improving profitability to contribute to neighbors' overall profitability in the mid to long term. In Q1, consolidated net income was $423.7 billion, down by 23.8% of YOY. primarily due to a base effect from the gain of the disposal of subsidiaries, including neighbor Z, in Q1 2024. Next, I will discuss cash flow and shareholder returns. In Q1, free cash flow totaled $471.9 billion, down by $21.5 billion YOY, but up by $34.2 billion QOQ. This was due to increased capex driven by expanded investments in facilities to secure AI competitiveness despite stable growth in operating cash flow. Finally, in accordance with the shareholder return program, a cash dividend of $168.4 billion was paid on April 16th following approval at the regular shareholders meeting in March. The shareholder return program for the past three years will conclude with the cancellation of 1% of the company's treasury stock within this year. And a new three-year shareholder return policy, which will take into account neighbors' investment plans, liquidity, and debt ratio, will be shared with the market within this year. This concludes our overview of Q1 financial performance.

We now welcome any questions from the investors. Now Q&A session will begin.

Please press star 1, that is star and 1, if you have any questions. Questions will be taken according to the order you have pressed the number star 1. For cancellation, please press star 2, that is star and 2 on your phone.

The first question will be provided by Jingu Kim from Kiwoom Securities.

Please go ahead with your question. If you have any specific strategies or plans in the future, please let me know. The second question is about the global issue. The user engagement index, which covers the search query, is a matter of how the change is compared to the previous year. There is a noise that search traffic is reduced due to the release of global AI services. We will ask you about the situation of our company.

Thank you. I would like to ask you two questions. The first question relates to the synergies that you were able to see with the adoption of AI solutions into your commerce business. I would like to also gain an update as to the B2B solution sales to the third-party sellers. If you have any plans or strategies for the future, it would be appreciated if you could share that with us. Second question relates to a recent issue on a global basis. People are saying that With the emergence and adoption of AI services, basically the search queries and the user engagement metrics are actually coming down. So there is a bit of an issue or global issue that had recently emerged. I would like to understand whether you believe that that AI service is pushing down on the overall search query metrics.

Yes, first of all, I would like to give an answer about Commerce's AI solution. Currently, we are providing more than 100 solutions on Naver Shopping to the sellers, and many of them use AI to recommend, market, trade and profit trends to help sellers strategically use them. Currently, we are providing paid solutions for the activation of these sellers for free.

So responding to your question about the impact of AI solutions into our commerce business, at this point, Naver Shopping currently provides around 100 different solutions to our sellers. And most of these solutions are AI-powered in terms of making recommendations, marketing, transactions, and also facilitating the inflow of users. And the sellers can make use of such trend and data and can benefit from the use of such solutions. So our strategy at this time is to provide some of these solutions free of charge to the sellers so that we can onboard as many sellers as possible. So from a short run, This may bring down the top line slightly, but it also means that the number of sellers who will be making use of such solutions are going to rise as we go into the future, and that will, we believe, contribute to the GMV growth.

Commerce B2B solution 사업의 경우에는 현재 여러 가지로 검토 중에 있지만 아직 구체화된 내용은 없어서 관련된 내용이 구체화되는 대로 말씀드리도록 하겠습니다.

And regarding the commerce B2B solution business, we are looking into this opportunity from many different aspects, but no confirmed decision has yet been made.

We will come back to you in due course.

Responding to the question about the recent search query trend, based upon responding to your question relating to the search query trend, we, based upon our internal data, do not yet see any negative or bad impact on our query trend coming from the use of the generative AI. The current trend is maintained at a quite steady state.

The reason for this is that we believe it is because of the characteristics of the Naver search service. Our search service itself, rather than focusing on providing an answer type search, we are focusing on increasing the search satisfaction by providing a high level of UGC information on various types of search information such as shopping, looking for good restaurants, and so on. So far, these kind of AI services The key characteristics that you see from Naver Search is that our strategy has always been

and enhancing user satisfaction, especially around the UGCs as people search for where to shop and where to go eat. So it's mostly focused on the discovery aspect rather than a simple factual-based search query. So I believe that the application of the generative AI and the impact from it is going to be more bigger for our peers that focus more on the non-commercial and factual-based queries For us, it's always been focused on discovery and also providing people with information in terms of the commerce and the business. So, queries that don't necessarily have one single answer to. So, I think in that sense, we are impacted less.

However, there are various ways to use the AI search service. Recently, we are well aware of the flow of connecting place and search shopping. If the AI search becomes more advanced, users' information consumption behavior will eventually change. In this case, we believe that it is most important to provide content and information according to the interest and context of each user. Therefore, we plan to change our app service and communication search based on the vast data and technology that Naver has within the year. But with the continued use of generative AI, we see that the generative AI usage is being tied up with, for instance, shopping experience and Naver Place as well.

With the continuous evolution and development of generative AI into the future, we believe that we will be able to see more diversified consumer behavior when it comes to use of such services. And hence, it's going to be more important for us to be able to provide the content and information that individuals seek based upon their interest and their preferences, and it would be very important for us in that sense to be targeting that as well. So underpinned by Naver's data and technology, hence we've decided to revamp the application as well as our main search of Naver, which will be further enhanced so that we can provide a way for the consumers to basically use these different types of search and also really cater to their need for search, shopping, and other services that we can provide.

Next question, please.

The following question will be presented by Eric Cha from Goldman Sachs. Please go ahead with your question.

Thank you for the question. First of all, congratulations on your CFO's debut. There are two questions. You released the AI briefing in the first quarter, and the coverage of the query did not look that wide, but I wonder if it was to control the number of clicks or to control the cost. And secondly, I'd like to ask you about the shopping app. I'm curious about what you've learned so far and how you judge it. Also, due to this reform and other strategies, when do you think the G&B of Naver Shopping can significantly accelerate growth? And you commented that competitors don't feel much impact on the external macro environment.

First off, congratulations to the CFO for your debut earnings release call. My first question relates to the AI briefing, which was released in the first quarter. It seems like the quarterly coverage is not that big. Was it your intention to actually control the cannibalization that may take place in terms of the number of clicks or was the intention to control cost? And so we'd like to ask you that question. Second has to do with the Naver Shopping app. What are the pros and cons related to the launch of this application? I understand that there is a strategy to revamp this as you go into the future. So when do you think is the timing for us to be able to see an accelerated trend in terms of GMV growth for Naver Shopping? And finally, Another aspect of the question is that your competitor had said that the overall macro headwind is not really impacting their business. What about Naver Commerce?

First of all, regarding AI briefing, we have started to expose AI briefing to about 1% of QC. The reason is that Naver, especially in Korea, has a great impact on the overall Internet ecosystem. Yes, internally we've decided to apply AI briefing to 1% of the factual related queries.

Basically, we've done that with intention because Search really has a big impact across the overall Internet ecosystem of Korea. So we've decided to take a small portion and apply this feature first so that we can steadily, gradually expand this into the future within the control of the impact that may be generated during this process. So before the end of the year, our plan is to expand the coverage to double digits.

Yes, so far, the shopping app has been in line with our intention to quickly set up the market, and we have been using the existing Naver app and the shopping service on the mobile web to frequently visit customers with high loyalty to our PLUS membership, Regarding the shopping application, its development is ongoing as per our plan and our intention, and it is very quickly gaining its solid market positioning.

So there are positive impacts. For instance, if you look at casual visitors to our services who use Naver app and the mobile web, they would come to have price comparisons and also to discover the products that they wish. On the other hand, we have highly loyal customer base, user base, who are more frequent users of the services For them, you know, our intention is to have them come to the standalone shopping application. So our intention was to increase and expand the channel through which these consumers come visit us, and we believe that that will have an impact, a positive impact, that is, and driving up the number of users.

Through this two-track strategy, we will be able to increase the number of users We are focusing on increasing the number of visitors and the high rate of purchase. We are focusing on increasing the number of visitors and the high rate of purchase. We are focusing on increasing the number of visitors and the high rate of purchase. We are focusing on increasing the number of visitors and the high rate of purchase. So as I've explained, we are taking on a two-track approach for the Naver app and the Naver web.

Basically, we have not seen any cannibalization in terms of the users that come through this channel were maintaining the previous metrics. And for more highly loyal users in terms of people who visit us more frequently and where there is more higher level of conversion, basically they are coming through the application, the standalone application. So our intention is to not just recklessly try to channel everybody through the application, the standalone application, we will continuously enhance the application as well as the services that we provide, that is well in line with the consumer behavior pattern. And if you look at the initial metrics, although it's only been two months since the release, in terms of the number of downloads and the number of user metrics, we are seeing quite positive results.

We are also judging that the external macro environment is not very good. In our case, if we look at the external stock market, I think it's growing in a negative way. If we think of a business model like ours, I don't think we'll be able to see much impact on the external macro-environment. However, we will try to increase our membership benefits through our free ecosystem, such as the reform of the shopping app, and we will work hard to increase the number of two-digit transactions this year with our own strategy. In the case of competitive societies, we will have to look at it more, Our take of the external macro environment is that it is quite bad.

In terms of, therefore, the outlink partner ecosystem, and if you look at the GMVs, basically we've seen negative growth from there. However, and so we cannot say that we are completely insulated from these external negative macro headwinds. Having said that, we will continuously further enhance our shopping applications and also strengthen our partnership ecosystem through ways of providing stronger benefits to our user base so that we can really meet the bold and aggressive growth target of driving double-digit growth this year. In terms of the competitive landscape, we believe that the macro environment is having its toll on specific categories such as groceries, and as you know, groceries are

It's an area that we've decided to partner up with Curlie.

The following question will be presented by Dongryun Lee from Macquarie Securities. Please go ahead with your question.

Yes, thank you for the question. Recently, you released an open-source LLM. What kind of ecosystem are you planning to build using this LLM in Naver, and how are you planning to monetize it?

Thank you for taking my question. Naver recently unveiled your open-source large language model. What is the ecosystem you're envisioning underpinned by the LLM, and what is the monetization model for this?

We plan to focus on Naver's search or Naver's commerce according to our on-service AI strategy.

Under the overarching strategy of on-service AI, we will be using our Hyper Clover X to upgrade the search and the commerce, which are the key business areas that Naver is in, And this language model that we've developed, we want to make sure that this also makes its contribution to the greater ecosystem, especially on the areas of commerce. So we've decided to open source it.

Yes, through this, the domestic AI ecosystem that is still growing slowly is more activated and we are looking forward to its rapid growth. In our case, we are looking forward to the development We believe that this move is going to help with the

the more vital growth of the AI ecosystem within Korea, and we hope that it will contribute to that progress. The partnerships that we've entered into with Bank of Korea and Korea Hydro Nuclear Power, these are not just simply a partnership with a public entity, but it is important in that we will be able to provide more specialized AI services for each of the verticals, including the financials as well as the natural resources industry. So by winning such B2B reference points, that will be one of the ways in which we will go ahead with monetization.

In the case of our public open source model, we are showing very high performance compared to the very light capacity. This part also shows the strongest point in Korean and is evaluated as a service that fits the context. It is expected to be used in various areas, such as solutions that suggest advertising copies in Korea and travel guides. It is expected to be used in various areas, such as solutions that suggest advertising copies in Korea and travel guides. It is expected to be used in various areas, such as solutions that suggest advertising copies in Korea and travel guides. It is expected to be used in various areas, such as solutions that suggest advertising copies in Korea and travel guides.

So the recently unveiled open source model is very light compared to the high level of performance that it offers, and it really has strength in terms of Korean language and also in terms of context-aware service delivery. So we believe that the usage will be quite high in terms of, for instance, recommending certain advertisement or commercial copyright messages or providing a travel-related guide for the domestic. for domestic travels. And we believe that helping with the creation of such ecosystem eventually is also going to help with neighbor ecosystem as well.

In the end, if the AI ecosystem is further created in Korea and if the AI adoption rate of companies increases, we are looking forward to more successful import models such as NeuroCloud and GPU Azure Service that we provide through the cloud.

So once the AI ecosystem takes root within the domestic market, we believe that companies will start to adopt AI much more quickly, and that will in turn have positive impact on our cloud business, including neural cloud and GPU as a services, and give us or ensure us a good success in terms of monetization and business model.

Next question, please.

The next question is from Samseong Securities.

The following question will be presented by Dong Won Oh from Samseong Securities. Please go ahead with your question.

Thank you for your question. After the appearance of DeepSeq R1 in the market, it is expected that we can make a short-term model even using a small CPU through AI models and authentication technology. Thank you for taking my question.

Even with the emergence of DeepSeq and using less number of GPUs, still DeepSeq, I understand, uses tens of thousands and it owns tens of thousands of GPUs. So I would presume the neighbor would need more number of GPUs going forward. What's the CapEx implication for this?

In terms of CapEx investment, we will continue to work with AI to strengthen the competitiveness of our search, commerce, and vertical services.

Regarding CapEx, as we go forward, we're going to see more use of AI in our core services like search, commerce, and other key verticals. So we believe that there would be more CapEx investment that would be required for GPUs and CPUs. So compared to the top-line revenue, our infrastructure spending is expected to increase.

So compared to the top-line revenue, our infrastructure spending is expected to increase. So compared to the top-line revenue, our infrastructure spending is expected to increase. So compared to the top-line revenue, our infrastructure spending is expected to increase.

Having said that, that does not mean that we will just recklessly mimic the path that the global big techs are going. Naver will be fully considering our capabilities, our strategic direction, and the resources that are available for us. We will make appropriate assessment in terms of financials.

I have one more question in relation to time.

Thank you very much.

With no questions in the queue, we would now like to close.